WATER CODE CHAPTER 67. NONPROFIT WATER SUPPLY OR SEWER SERVICE CORPORATIONS

WATER CODE

TITLE 4. GENERAL LAW DISTRICTS

CHAPTER 67. NONPROFIT WATER SUPPLY OR SEWER SERVICE CORPORATIONS

SUBCHAPTER A. GENERAL PROVISIONS

Sec. 67.001. DEFINITIONS. In this chapter:

(1) "Board" means the board of directors of a corporation.

(2) "Corporation" means a water supply or sewer service corporation operating under this chapter.

(3) "Director" means a member of the board of directors.

Added by Acts 1997, 75th Leg., ch. 166, Sec. 2, eff. Sept. 1, 1997.

Sec. 67.002. PURPOSE OF CORPORATION. A corporation may be organized under this chapter to provide:

(1) water supply, sewer service, or both for a municipality, a private corporation, an individual, or a military camp or base; and

(2) flood control and a drainage system for a political subdivision, private corporation, or another person.

Added by Acts 1997, 75th Leg., ch. 166, Sec. 2, eff. Sept. 1, 1997.

Sec. 67.003. CREATION OF CORPORATION. (a) Three or more individuals who are citizens of this state may form a corporation by making an application to the secretary of state in the same manner as provided by law for an application for a private corporation.

(b) The application for charter must include the number of directors and the name of each director.

Added by Acts 1997, 75th Leg., ch. 166, Sec. 2, eff. Sept. 1, 1997.

Sec. 67.004. APPLICATION OF TEXAS NON-PROFIT CORPORATION ACT. To the extent it does not conflict with this chapter, the Texas Non-Profit Corporation Act (Article 1396-1.01 et seq., Vernon's Texas Civil Statutes) applies to a corporation created under:

(1) this chapter; or

(2) Chapter 76, Acts of the 43rd Legislature, 1st Called Session, 1933 (Article 1434a, Vernon's Texas Civil Statutes).

Added by Acts 1997, 75th Leg., ch. 166, Sec. 2, eff. Sept. 1, 1997.

Sec. 67.005. DIRECTORS. (a) A corporation may not have more than 21 directors.

(b) The corporation may increase the number of directors by amendment to the bylaws but may not exceed the limit imposed by Subsection (a).

(d) At the first annual meeting of the shareholders, the directors shall be divided into two or three classes according to the length of the terms the directors serve. The classification of directors may not take effect before that meeting.

(e) The division of the directors and the corresponding terms must be set so that:

(1) one-half of the directors, as nearly as possible, are elected annually, if a two-year term is provided; or

(2) one-third of the directors, as nearly as possible, are elected annually, if a three-year term is provided.

(f) After the implementation of two-year or three-year terms for directors, as directors' terms expire, the members shall elect their successors to serve until the second or third succeeding annual meeting after their election, as appropriate.

Added by Acts 1997, 75th Leg., ch. 166, Sec. 2, eff. Sept. 1, 1997.

Sec. 67.0051. QUALIFICATIONS FOR ELECTION OR APPOINTMENT AS DIRECTOR. (a) To be qualified for election or appointment as a director, a person must be:

(1) 18 years of age or older on the first day of the term to be filled at the election or on the date of appointment, as applicable; and

(2) a member or shareholder of the corporation.

(b) In addition to the qualifications prescribed by Subsection (a), a person is not qualified to serve as a director if the person:

(1) has been determined by a final judgment of a court exercising probate jurisdiction to be:

(A) totally mentally incapacitated; or

(B) partially mentally incapacitated without the right to vote; or

(2) has been finally convicted of a felony from which the person has not been pardoned or otherwise released from the resulting disabilities.

(c) If the board determines that a person serving as a director does not have the qualifications prescribed by Subsections (a) and (b), the board shall, not later than the 60th day after the date the board makes that determination, remove the director and fill the vacancy by appointing a person who has the qualifications prescribed by those subsections.

Added by Acts 2011, 82nd Leg., R.S., Ch. 10 (S.B. 333), Sec. 1, eff. September 1, 2011.

Sec. 67.0052. BALLOT APPLICATION. (a) To be listed on the ballot as a candidate for a director's position, a person must file an application with the corporation that includes:

(1) the director's position sought, including any position number or other distinguishing number;

(2) if the corporation has 1,500 or more members or shareholders, a petition signed by 20 members or shareholders requesting that the person's name be placed on the ballot as a candidate for that position;

(3) the person's written consent to serve, if elected;

(4) biographical information about the person; and

(5) a statement of the person's qualifications, including a statement that the person has the qualifications prescribed by Section 67.0051.

(b) The application must be filed with the corporation not later than the 45th day before the date of the annual meeting. The corporation shall notify the members or shareholders of the application deadline not later than the 30th day before the deadline.

(c) The corporation shall make available director candidate application forms at the corporation's main office and shall provide application forms by mail or electronically on request.

(d) This section applies only to a corporation that provides retail water or sewer service.

Added by Acts 2011, 82nd Leg., R.S., Ch. 10 (S.B. 333), Sec. 1, eff. September 1, 2011.

Amended by:

Acts 2013, 83rd Leg., R.S., Ch. 84 (S.B. 447), Sec. 1, eff. May 18, 2013.

Sec. 67.0053. BALLOT. (a) Not later than the 30th day before the date of an annual meeting, the corporation shall mail to each member or shareholder of record:

(1) written notice of the meeting;

(2) the election ballot; and

(3) a statement of each candidate's qualifications, including biographical information as provided in each candidate's application.

(b) The election ballot must include:

(1) the number of directors to be elected; and

(2) the names of the candidates for each position.

(1) applies only to a corporation that provides retail water or sewer service; and

(2) does not apply to an election in relation to a candidate for a director's position for which the board has adopted a resolution under Section 67.0055.

Added by Acts 2011, 82nd Leg., R.S., Ch. 10 (S.B. 333), Sec. 1, eff. September 1, 2011.

Amended by:

Acts 2013, 83rd Leg., R.S., Ch. 84 (S.B. 447), Sec. 2, eff. May 18, 2013.

Sec. 67.0054. ELECTION PROCEDURES. (a) A member or shareholder may vote:

(1) in person at the annual meeting;

(2) by mailing a completed ballot to the office of the independent election auditor selected under Section 67.007(d) or to the corporation's main office, which ballot must be received by the corporation not later than noon on the business day before the date of the annual meeting; or

(3) by delivering a completed ballot to the office of the independent election auditor or to the corporation's main office not later than noon on the business day before the date of the annual meeting.

(b) The independent election auditor shall receive and count the ballots before the annual meeting is adjourned.

(c) For each director's position, the candidate who receives the highest number of votes or who is the subject of a resolution described by Section 67.0055 is elected.

(d) If two or more candidates for the same position tie for the highest number of votes for that position, those candidates shall draw lots to determine who is elected.

(e) The independent election auditor shall provide the board with a written report of the election results.

(f) The board may adopt necessary rules or bylaws to implement this section, including rules or bylaws to ensure the fairness, integrity, and openness of the voting process.

(g) This section applies only to a corporation that provides retail water or sewer service.

Added by Acts 2011, 82nd Leg., R.S., Ch. 10 (S.B. 333), Sec. 1, eff. September 1, 2011.

Amended by:

Acts 2013, 83rd Leg., R.S., Ch. 84 (S.B. 447), Sec. 3, eff. May 18, 2013.

Sec. 67.0055. ELECTION OF UNOPPOSED CANDIDATE. (a) This section applies only to an election for a director's position on a board of a corporation that provides retail water or sewer service in which a candidate who is to appear on the ballot for the position is unopposed.

(b) The board by resolution may declare a candidate elected to a director's position if the board certifies in writing that the candidate is unopposed for the position. A copy of the resolution shall be posted at the corporation's main office.

(d) If the election for the unopposed candidate would have been held with an annual meeting of the members or shareholders of the corporation, the text of the declaration described by Subsection (b) shall be read into the record at the annual meeting.

(e) The ballots used at a separate election that is held at the same time as an election for an unopposed candidate would have been held shall include after measures or contested races the position and name of a candidate declared elected under this section, under the heading "Unopposed Candidates Declared Elected."

(f) A person may not, by intimidation or by means of coercion, influence or attempt to influence a person to withdraw as a candidate or not to file an application for a place on the ballot so that an election may be canceled.

(g) The board may adopt necessary rules or bylaws to implement this section, including rules or bylaws to ensure the fairness, integrity, and openness of the process.

Added by Acts 2013, 83rd Leg., R.S., Ch. 84 (S.B. 447), Sec. 4, eff. May 18, 2013.

Sec. 67.006. OFFICERS. (a) The board shall elect a president, a vice president, and a secretary-treasurer following the issuance of a charter and after each annual meeting of the membership or shareholders. At the meeting, each member or stockholder may be allowed only one vote regardless of the number of memberships or stock certificates held by the person.

(b) The board may require a bond of an officer for faithful performance of the officer's duties.

(c) The salary of an officer of the corporation other than secretary-treasurer or a manager employed under Section 67.012 may not exceed $5,000 a year. The board shall set the secretary-treasurer's salary at an amount commensurate with the secretary-treasurer's duties.

Added by Acts 1997, 75th Leg., ch. 166, Sec. 2, eff. Sept. 1, 1997. Amended by Acts 1999, 76th Leg., ch. 62, Sec. 18.18(a), eff. Sept. 1, 1999.

Sec. 67.007. ANNUAL OR SPECIAL MEETING OF RETAIL CORPORATION. (a) The annual meeting of the members or shareholders of the corporation must be held between January 1 and May 1 at a time specified by the bylaws or the board.

(a-1) A quorum for the transaction of business at a meeting of the members or shareholders is a majority of the members and shareholders present. In determining whether a quorum is present, all members and shareholders who mailed or delivered ballots to the independent election auditor or the corporation on a matter submitted to a vote at the meeting are counted as present.

(b) The board shall adopt written procedures for conducting an annual or special meeting of the members or shareholders in accordance with this section and Sections 67.0052, 67.0053, and 67.0054. The procedures shall include the following:

(1) notification to eligible members or shareholders of the proposed agenda, location, and date of the meeting;

(2) director election procedures, including candidate application procedures;

(3) approval of the ballot form to be used; and

(4) validation of eligible voters, ballots, and election results.

(c) The board shall adopt an official ballot form to be used in conducting the business of the corporation at any annual or special meeting. No other ballot form will be valid. Ballots from members or shareholders are confidential and are exempted from disclosure by the corporation until after the date of the relevant election.

(d) The board shall select an independent election auditor not later than the 30th day before the scheduled date of the annual meeting. The independent election auditor is not required to be an experienced election judge or auditor and may serve as an unpaid volunteer. At the time of selection and while serving in the capacity of an independent election auditor, the independent election auditor may not be associated with the corporation as:

(1) an employee;

(2) a director or candidate for director; or

(3) an independent contractor engaged by the corporation as part of the corporation's regular course of business.

(e) This section applies only to a corporation that provides retail water or sewer service.

Added by Acts 1997, 75th Leg., ch. 166, Sec. 2, eff. Sept. 1, 1997. Amended by Acts 1999, 76th Leg., ch. 54, Sec. 1, eff. May 10, 1999.

Amended by:

Acts 2011, 82nd Leg., R.S., Ch. 10 (S.B. 333), Sec. 2, eff. September 1, 2011.

Acts 2013, 83rd Leg., R.S., Ch. 84 (S.B. 447), Sec. 5, eff. May 18, 2013.

Acts 2013, 83rd Leg., R.S., Ch. 84 (S.B. 447), Sec. 6, eff. May 18, 2013.

Sec. 67.0075. ANNUAL OR SPECIAL MEETING OF OTHER CORPORATION. A corporation to which Section 67.007 does not apply shall comply with the annual meeting and director election provisions prescribed by Chapter 22, Business Organizations Code.

Added by Acts 2013, 83rd Leg., R.S., Ch. 84 (S.B. 447), Sec. 7, eff. May 18, 2013.

Sec. 67.008. DISTRIBUTION OF PROFITS. (a) The incorporators may provide in the charter of the corporation that a dividend will not be paid on the stock and that all profits of the corporation will be paid annually to political subdivisions, private corporations, or other persons that have transacted business with the corporation during the previous year.

(b) The corporation shall distribute any profits under Subsection (a) in direct proportion to the amount of business the corporation transacts with each entity during that year.

(d) A corporation may allocate to a sinking fund an amount of the annual profits as determined necessary by the board for maintenance, operation, and replacements.

Added by Acts 1997, 75th Leg., ch. 166, Sec. 2, eff. Sept. 1, 1997.

Sec. 67.009. FACILITIES. A corporation may construct, acquire, lease, improve, extend, or maintain a facility, plant, equipment, or appliance helpful or necessary to provide more adequate sewer service, flood control, or drainage for a political subdivision.

Added by Acts 1997, 75th Leg., ch. 166, Sec. 2, eff. Sept. 1, 1997.

Sec. 67.010. POWER TO CONTRACT WITH OTHER ENTITIES. (a) A corporation may enter into a contract with any political subdivision, federal agency, or other entity for the acquisition, construction, or maintenance of a project or improvement for an authorized purpose.

(b) A corporation may obtain money from any political subdivision of this state, federal agency, or other entity to finance the acquisition or construction of a project or improvement for an authorized purpose.

(c) A corporation may encumber the project or improvement and may encumber any income, fees, rents, and other charges derived from the operation of the project or improvement. The corporation may issue bonds, notes, or warrants to secure payment of funds received. Indebtedness authorized by this subsection is a charge only on specifically encumbered property and revenues and is not a general obligation of indebtedness of the corporation.

(d) A political subdivision may contract with a corporation under Section 552.014, Local Government Code, to carry out this chapter. If a corporation issues bonds secured by a contract entered into under Section 552.014, Local Government Code, the corporation is considered to be acting for or on behalf of that political subdivision for the purposes of Section 1201.002(1), Government Code. A political subdivision is authorized to approve by ordinance, resolution, or order the articles of incorporation and the bylaws of a corporation that is created for the purpose of constructing facilities under a contract as provided by Section 552.014, Local Government Code.

Added by Acts 1997, 75th Leg., ch. 166, Sec. 2, eff. Sept. 1, 1997. Amended by Acts 2003, 78th Leg., ch. 248, Sec. 56, eff. June 18, 2003.

Amended by:

Acts 2007, 80th Leg., R.S., Ch. 885 (H.B. 2278), Sec. 3.77(32), eff. April 1, 2009.

Sec. 67.0105. WATER FOR FIRE SUPPRESSION. (a) A corporation may provide a water supply to a governmental entity or volunteer fire department for use in fire suppression.

(a-1) A corporation may enter into a contract with a governmental entity or a volunteer fire department to supply water to fire hydrants owned by the governmental entity or the corporation for use in fire suppression by the governmental entity's fire department or a volunteer fire department. The contract must be under terms that are mutually beneficial to the contracting parties.

(b) The furnishing of a water supply and fire hydrant equipment by a governmental entity or a volunteer fire department directly or through another entity by a lease, contract, or any other manner is an essential governmental function and not a proprietary function for all purposes, including the application of Chapter 101, Civil Practice and Remedies Code.

(c) A corporation that provides a governmental entity or volunteer fire department with a water supply or fire hydrant equipment to carry out the governmental function described by Subsection (b) may be liable for damages only to the extent that the governmental entity or volunteer fire department would be liable if the governmental entity or volunteer fire department were performing the governmental function directly.

Added by Acts 1999, 76th Leg., ch. 62, Sec. 18.19(a), eff. Sept. 1, 1999.

Amended by:

Acts 2011, 82nd Leg., R.S., Ch. 290 (H.B. 1814), Sec. 1, eff. September 1, 2011.

Text of section as amended by Acts 2003, 78th Leg., ch. 46, Sec. 1

Sec. 67.011. ADDITIONAL POWERS OF CORPORATION. In addition to other powers granted by this chapter, a corporation may:

(1) own, hold, lease, or otherwise acquire water wells, springs, or other sources of water supply;

(2) build, operate, and maintain pipelines to transport water or wastewater;

(3) build and operate plants and equipment necessary to distribute water or to treat and dispose of wastewater; and

(4) sell water or provide wastewater services to a political subdivision, a private corporation, or an individual.

Added by Acts 1997, 75th Leg., ch. 166, Sec. 2, eff. Sept. 1, 1997. Amended by Acts 2001, 77th Leg., ch. 669, Sec. 151, eff. Sept. 1, 2001; Acts 2003, 78th Leg., ch. 46, Sec. 1, eff. May 15, 2003.

Text of section as amended by Acts 2003, 78th Leg., ch. 512, Sec. 1

Sec. 67.011. POWERS OF CORPORATION IN CERTAIN COUNTIES. (a) In a county with a population of less than 3.3 million, a corporation may:

(1) own, hold, lease, or otherwise acquire water wells, springs, or other sources of water supply;

(2) build, operate, and maintain pipelines to transport water or wastewater;

(3) build and operate plants and equipment necessary to distribute water or to treat and dispose of wastewater;

(4) sell water or provide wastewater services to a political subdivision, a private corporation, or an individual; and

(5) establish and enforce reasonable customer water conservation practices and prohibit excessive or wasteful uses of potable water.

(b) A corporation may enforce customer water conservation practices under Subsection (a)(5) by assessing reasonable penalties as provided in the corporation's tariff. A penalty may be appealed in the same manner as provided for appeal of new customer service costs under Section 13.043(g). In an appeal, the commission shall approve a corporation's penalty if the commission determines that the penalty is clearly stated in the tariff, that the penalty is reasonable, and that the corporation has deposited the penalty in a separate account dedicated to enhancing water supply for the benefit of all the corporation's customers.

Added by Acts 1997, 75th Leg., ch. 166, Sec. 2, eff. Sept. 1, 1997. Amended by Acts 2001, 77th Leg., ch. 669, Sec. 151, eff. Sept. 1, 2001; Acts 2003, 78th Leg., ch. 512, Sec. 1, eff. June 20, 2003.

Sec. 67.012. USE OF MANAGER. The board may employ a manager to handle the business of the corporation under the direction of the board. The board shall set the salary for the manager.

Added by Acts 1997, 75th Leg., ch. 166, Sec. 2, eff. Sept. 1, 1997.

Sec. 67.013. USE OF COUNSEL. The board may employ and compensate counsel to represent the corporation as the board determines is necessary.

Added by Acts 1997, 75th Leg., ch. 166, Sec. 2, eff. Sept. 1, 1997.

Sec. 67.014. DEPOSITORY FOR FUNDS; PERMITTED INVESTMENTS. (a) The board shall select as depository for the funds of the corporation a bank in this state that is insured by the Federal Deposit Insurance Corporation and require from the depository a bond in an amount the board finds necessary to protect the corporation.

(b) Funds allocated by the board to a sinking fund for replacement, amortization of debts, and the payment of interest that are not required to be spent in the year in which deposited shall be:

(1) invested in bonds or other evidence of indebtedness of the United States;

(2) placed with the depository in an interest-bearing savings account;

(3) invested in shares or share accounts in a savings and loan association insured by the Federal Deposit Insurance Corporation; or

(4) invested in an investment that is authorized under Subchapter A, Chapter 2256, Government Code, and by a written investment policy approved by the board that complies with Section 2256.005, Government Code.

Added by Acts 1997, 75th Leg., ch. 166, Sec. 2, eff. Sept. 1, 1997. Amended by Acts 1999, 76th Leg., ch. 258, Sec. 1, 2, eff. May 28, 1999.

Sec. 67.015. EXEMPTION FROM SECURITIES ACT. The Securities Act (Title 12, Government Code) does not apply to:

(1) a note, bond, or other evidence of indebtedness issued by a corporation doing business in this state to the United States;

(2) an instrument executed to secure a debt of a corporation to the United States; or

(3) the issuance of a membership certificate or stock certificate of a corporation.

Added by Acts 1997, 75th Leg., ch. 166, Sec. 2, eff. Sept. 1, 1997.

Amended by:

Acts 2019, 86th Leg., R.S., Ch. 491 (H.B. 4171), Sec. 2.44, eff. January 1, 2022.

Sec. 67.016. TRANSFER OR CANCELLATION OF STOCK, MEMBERSHIP, OR OTHER RIGHT OF PARTICIPATION. (a) A person or entity that owns any stock of, is a member of, or has some other right of participation in a corporation may not sell or transfer that stock, membership, or other right of participation to another person or entity except:

(1) by will to a person who is related to the testator within the second degree by consanguinity;

(2) by transfer without compensation to a person who is related to the owner of the stock or other interest within the second degree by consanguinity; or

(3) by transfer without compensation or by sale to the corporation.

(b) Subsection (a) does not apply to a person or entity that transfers the membership or other right of participation to another person or entity as part of the conveyance of real estate from which the membership or other right of participation arose.

(c) The transfer of stock, a membership, or another right of participation under this section does not entitle the transferee to water or sewer service unless each condition for water or sewer service is met as provided in the corporation's published rates, charges, and conditions of service. A transfer and service application must be completed on the corporation's standardized forms and filed with the corporation's office in a timely manner. The conditions of service may not require a personal appearance in the office of the corporation if the transferee agrees in writing to accept the rates, charges, and conditions of service.

(d) The corporation may make water or sewer service provided as a result of stock, a membership, or another right of participation in the corporation conditional on ownership of the real estate designated to receive service and from which the membership or other right of participation arises.

(e) The corporation may cancel a person's or other entity's stock, membership, or other right of participation if the person or entity fails to:

(1) meet the conditions for water or sewer service prescribed by the corporation's published rates, charges, and conditions of service; or

(2) comply with any other condition placed on the receipt of water or sewer service under the stock, membership, or other right of participation.

(f) Consistent with Subsection (a), the corporation may reassign canceled stock or a canceled membership or other right of participation to a person or entity that has legal title to the real estate from which the canceled membership or other right of participation arose and for which water or sewer service is requested.

(g) Notwithstanding Subsection (a), the corporation shall reassign canceled stock or a canceled membership or other right of participation to a person or entity that acquires the real estate from which the membership or other right of participation arose through judicial or nonjudicial foreclosure. The corporation may require proof of ownership resulting from the foreclosure.

(h) Service provided following a transfer under Subsection (f) or (g) is made subject to compliance with the conditions for water or sewer service prescribed by the corporation's published rates, charges, and conditions of service.

Added by Acts 1997, 75th Leg., ch. 166, Sec. 2, eff. Sept. 1, 1997.

Sec. 67.017. VOLUNTARY CONTRIBUTIONS ON BEHALF OF EMERGENCY SERVICES. (a) A corporation may as part of its billing process collect from its customers a voluntary contribution, including a voluntary membership or subscription fee, on behalf of a volunteer fire department or an emergency medical service.

(b) A corporation that collects contributions under this section shall provide each customer at the time that the customer first subscribes to the water or sewer service, and at least annually thereafter, a written statement:

(1) describing the procedure by which the customer may make a contribution with the customer's bill payment;

(2) designating the volunteer fire department or emergency medical service to which the corporation will deliver the contribution;

(3) informing the customer that a contribution is voluntary; and

(4) describing the deductibility status of the contribution under federal income tax law.

(c) A billing by the corporation that includes a voluntary contribution under this section must clearly state that the contribution is voluntary and that it may be deducted from the billed amount.

(d) The corporation shall promptly deliver contributions that it collects under this section to the designated volunteer fire department or emergency medical service, except that the corporation may keep from the contributions an amount equal to the lesser of:

(1) the corporation's expenses in administering the contribution program; or

(2) five percent of the amount collected as contributions.

Added by Acts 1997, 75th Leg., ch. 166, Sec. 2, eff. Sept. 1, 1997.