TITLE 31. NATURAL RESOURCES AND CONSERVATION

PART 10. TEXAS WATER DEVELOPMENT BOARD

CHAPTER 363. FINANCIAL ASSISTANCE PROGRAMS

SUBCHAPTER A. GENERAL PROVISIONS

The Texas Water Development Board ("TWDB" or "board") adopts amendments to 31 Texas Administrative Code (TAC) §§363.2, 363.51, and 363.71 relating to construction contract requirements for iron and steel, without changes from the proposal published in the December 22, 2017, issue of the Texas Register (42 TexReg 7304). The board adopts amendments to §363.41 relating to construction contract requirements for iron and steel, with changes from the proposal published in the December 22, 2017, issue of the Texas Register (42 TexReg 7304).

BACKGROUND AND SUMMARY OF THE FACTUAL BASIS FOR THE ADOPTED AMENDMENT.

The TWDB adopts amendments to various provisions in 31 TAC Chapter 363 to implement legislative changes from Senate Bill (SB) 1289, 85th Legislative Session, and to provide greater clarity. These legislative changes relate to required construction contract language for the use of iron and steel products produced in the United States. The specific adopted amendments and the reasons for those adopted amendments are discussed in more detail below. Concurrent with the review of these adopted amendments, TWDB will publish a draft guidance document with further detail and explanation. This guidance may be found on the TWDB’s website.

SECTION BY SECTION DISCUSSION OF ADOPTED AMENDMENTS.

Division 1. Introductory Provisions.

§363.2. Definitions of Terms.

The definition of financial assistance is updated to include the State Water Implementation Fund for Texas and State Water Implementation Revenue Fund for Texas.

Division 4. Prerequisites to Release of State Funds.

§363.41. Engineering Design Approvals.

Section 363.41 is amended to only require two, rather than three copies of contract documents. This change is made to conform rule language to TWDB practice.

Section 363.41 is amended to add definitions of "iron and steel products," "manufacturing process," "mechanical and electrical components, equipment, systems and appurtenances," "political subdivision," "produced in the United States," and "project" to further explain the requirements of the section. These new definitions will assist in determining whether certain requirements or exceptions apply and will implement legislative changes enacted by SB 1289.

Section 363.41 is amended to reflect legislative changes enacted by SB 1289. The adopted amendments incorporate language from updated Texas Water Code §17.183 and new Texas Government Code, Chapter 2252, Subchapter F. The adopted amendments in §363.41(b)(3) require political subdivisions and persons with projects funded with financial assistance from the board to include language in certain contracts and bid documents requiring that any iron or steel products produced through a manufacturing process used in the project be produced in the United States. This requirement applies to bid documents submitted to the board and construction contracts entered into after September 1, 2017. The requirements do not apply to funding through the State Water Implementation Fund for Texas (SWIFT) or State Water Implementation Revenue Fund for Texas (SWIRFT) where the board has adopted a resolution approving an application for financial assistance before May 1, 2019, for any portion of the project (Section 6(b) of SB 1289).

Section 363.41 is also amended to include exemptions to this requirement and a description of certain items that are not "iron or steel products" for purposes of this section. The TWDB will issue guidance to address the procedures for implementing certain exemptions. These exemptions include situations where the board or Executive Administrator makes a determination that iron or steel products produced in the United States to be used in the project are not produced in sufficient quantities, reasonably available, or of a satisfactory quality. The requirements do not apply if the board or Executive Administrator determines that the use of iron or steel products produced in the United States will increase the total cost of the project by more than 20 percent or if complying with the requirements is inconsistent with the public interest. While Texas Government Code §2252.203 assigns the responsibility for making exemption determinations to the governing body of the governmental entity, the Board intends to initially delegate this decision to the Executive Administrator so that this decision can be made quickly as projects are being implemented. As detailed in the associated guidance document, those persons dissatisfied by the Executive Administrator’s decision have the option of seeking a final determination by the Board.

Mechanical and electrical components, equipment, systems, and appurtenances are not considered iron or steel products. As to electrical components, this adopted rule is consistent with new Texas Government Code §2252.203(b). As to mechanical components, this adopted rule is consistent with Environmental Protection Agency’s guidance under a similar federal program, and it is the board’s opinion that it is consistent with the intent of the statute. Additionally, the requirements only apply to iron or steel products that are permanently incorporated into a project.

The adopted rules restrict these exemption determinations to the board and Executive Administrator because Texas Government Code §2252.203 provides that the exemptions are to be determined by "the governing body of the governmental entity responsible for the project." "Governmental entity" is specifically defined by the statute as "this state or a board, commission, department, office, or other agency in the executive branch of state government." Furthermore, "the term does not include a political subdivision," which is defined in that statute to include "a county, municipality, municipal utility district, water control and improvement district, special utility district, and other types of water district."

The adopted rule states that entities receiving financial assistance from the TWDB for projects, as defined in the section, must obtain Executive Administrator approval of contract documents, including engineering plans and specifications and bid documents.

Section 363.41, in general, applies to certain state-funded TWDB programs, including the Water Assistance Fund, the Water Loan Assistance Fund, the Storage Acquisition Program, the Colonia Self-Help Program, the Disadvantaged Rural Communities Program, the Water Infrastructure Fund, SWIFT and SWIRFT, the State Participation Program, the Development Fund (including water supply projects, water quality enhancement projects, flood control projects, and the Economically Distressed Areas Program), the Revenue Bond Program, and the Groundwater District Loan Program. Through 31 TAC §384.1, §363.41 also applies to the Rural Water Assistance Fund. The requirements also apply to the Agricultural Water Conservation Program. This section does not apply to the TWDB’s federally-funded programs, the Clean Water State Revolving Fund and the Drinking Water State Revolving Fund. The TWDB is of the opinion that the federal requirements preempt state law for these federal programs. Additionally, the requirements detailed in Section 363.41 do not apply to projects funded through SWIFT or SWIRFT that received a commitment for any portion of the project before May 1, 2019. The specific applicability to TWDB programs will be further explained and discussed in guidance to be distributed by the TWDB.

Division 5. Construction Phase.

§363.51. Inspection During Construction.

Section 363.51 is amended in order to provide greater clarity and to implement certain terminology changes. The changes are made for consistency purposes and to conform terminology in the rules to TWDB practice.

Division 6. Post-Construction Responsibilities.

§363.71.General Responsibilities.

Section 363.71 is amended in order to provide greater clarity and to implement certain terminology changes. The changes are made for consistency purposes and to conform terminology in the rules to TWDB practice.

REGULATORY IMPACT ANALYSIS DETERMINATION

The board reviewed the adopted rulemaking in light of the regulatory analysis requirements of Texas Government Code §2001.0225, and determined that the rulemaking is not subject to Texas Government Code, §2001.0225, because it does not meet the definition of a "major environmental rule" as defined in the Administrative Procedure Act. A "major environmental rule" is defined as a rule with the specific intent to protect the environment or reduce risks to human health from environmental exposure, a rule that may adversely affect in a material way the economy or a sector of the economy, productivity, competition, jobs, the environment, or the public health and safety of the state or a sector of the state. The intent of the rulemaking is to implement legislative changes and provide greater clarity to those seeking and receiving financial assistance from the board.

Even if the adopted rule were a major environmental rule, Texas Government Code, §2001.0225 still would not apply to this rulemaking because Texas Government Code, §2001.0225 only applies to a major environmental rule, the result of which is to: 1) exceed a standard set by federal law, unless the rule is specifically required by state law; 2) exceed an express requirement of state law, unless the rule is specifically required by federal law; 3) exceed a requirement of a delegation agreement or contract between the state and an agency or representative of the federal government to implement a state and federal program; or 4) adopt a rule solely under the general powers of the agency instead of under a specific state law. This rulemaking does not meet any of these four applicability criteria because it: 1) does not exceed any federal law; 2) does not exceed an express requirement of state law; 3) does not exceed a requirement of a delegation agreement or contract between the state and an agency or representative of the federal government to implement a state and federal program; and 4) is not adopted solely under the general powers of the agency, but rather Texas Water Code §6.101 and Texas Government Code §2252.202. Therefore, this adopted rule does not fall under any of the applicability criteria in Texas Government Code, §2001.0225.

TAKINGS IMPACT ASSESSMENT

The board evaluated this adopted rule and performed an analysis of whether it constitutes a taking under Texas Government Code, Chapter 2007. The specific purpose of this rule is to implement legislative changes and provide greater clarity to those seeking and receiving financial assistance from the board. The adopted rule would substantially advance this stated purpose by incorporating new statutory language into rule language, updating internal references regarding TWDB financial assistance programs, and including definitions for terminology used in rule language.

The board's analysis indicates that Texas Government Code, Chapter 2007 does not apply to this adopted rule because this is an action that is reasonably taken to fulfill an obligation mandated by state law, which is exempt under Texas Government Code, §2007.003(b)(4). The board is the agency that provides financial assistance for the construction of water, wastewater, flood control, and other related projects.

Nevertheless, the board further evaluated this adopted rule and performed an assessment of whether it constitutes a taking under Texas Government Code, Chapter 2007. Promulgation and enforcement of this adopted rule would be neither a statutory nor a constitutional taking of private real property. Specifically, the subject adopted regulation does not affect a landowner's rights in private real property because this rulemaking does not burden nor restrict or limit the owner's right to property and reduce its value by 25% or more beyond that which would otherwise exist in the absence of the regulation. In other words, this rule requires compliance with state construction contract requirements without burdening or restricting or limiting an owner's right to property and reducing its value by 25% or more. Therefore, the adopted rule does not constitute a taking under Texas Government Code, Chapter 2007.

PUBLIC COMMENTS

The TWDB received the following comments:

Comment

The Alliance for American Manufacturing (AAM) and the Municipal Castings Association (MCA) commented that they agree with the TWDB that the state law is preempted by the federal requirements when federal assistance is utilized on projects also receiving TWDB aid. AAM and MCA commented that projects receiving funding from federal sources must comply with the federal American Iron and Steel requirements (AIS). AAM and MCA noted that the Environmental Protection Agency (EPA) has made it clear that any project that is funded in whole or in part with such funds must comply with the American Iron and Steel requirement.

Response

The TWDB acknowledges this comment. No changes have been made.

Comment

AAM; EBAA Iron Sales, Inc. (EBAA); MCA; and Nucor Bar Mill Group, Jewett Division (Nucor) commented that they had concerns with the fiscal note included in the preamble for the proposed rules.

Response

The TWDB acknowledges this comment. The TWDB notes the uncertainty involved in predicting the costs associated with legislative and rule changes. Pursuant to requirements included in SB 1289, the TWDB will be soliciting this information from borrowers and including data and information in a report to the Texas State Auditor by December 1, 2018. Because the Administrative Procedures Act in Chapter 2001, Texas Government Code, does not require a fiscal note to be included with an adopted rule, the TWDB has not made any changes pursuant to this comment. However, the TWDB looks forward to better ascertaining potential cost increases or decreases associated with SB 1289 and U.S. Iron and Steel requirements through its required report to the Texas State Auditor.

Comment

MCA commented that it is pleased that the TWDB has attempted, in many instances, to apply the Texas law in a manner consistent with the EPA’s policies implementing the federal AIS laws applicable to the Agency’s federal-assistance programs for clean and safe drinking water infrastructure. The MCA commented that because many of the TWDB’s anticipated financing recipients are also complying with the federal AIS laws, compliance with the state law should be aided by the TWDB’s decision to administer the new state law in manners relatively consistent with the EPA’s administration of the federal laws. However, the Texas law deviates from the federal laws administered by the EPA.

Response

The TWDB acknowledges this comment. No changes have been made. MCA’s specific comments on where Texas law deviates from the federal laws are addressed separately below.

Comment

The Texas Water Infrastructure Network (TxWIN) commented that it supports the addition of "bid documents" into the required documentation.

Response

The TWDB acknowledges this comment. No changes have been made.

Comment

TxWIN requested TWDB clarify that the language in §363.41(b) is intended to ensure plans and specifications comply with U.S. Iron and Steel requirements and that it means the signed and executed documents with engineer’s seal are intended to attest that designs and specifications are compliant with applicable U.S. Iron and Steel requirements.

Response

The language in §363.41(b) is intended to attest compliance with state design criteria and programmatic requirements, which now include U.S. Iron and Steel requirements.

Comment

The Texas Water Supply Partners (TWSP) recommended that TWDB require applicants to indicate waiver requests in a separate subsection in the description of the project at the beginning of the application in order to draw attention to the need for additional review by board staff and any interested parties.

Response

The TWDB believes that this comment would be better addressed in the associated guidance document or in the financial assistance application itself, rather than the rules. Changes have been made to that document in response to comments.

Comment

In the public hearing, NHCRWA suggested boilerplate language for SWIFT grandfather language; they suggested a mechanism for an applicant, in submitting documents, to be able to say that the project is subject to Section 6(b) of SB 1289 so that TWDB staff can see that the applicant is stating it is exempt from the U.S. Iron and Steel requirements.

Response

The TWDB believes that these issues are better addressed in the associated guidance document rather than the rules. No changes have been made in the rules in response to this comment.

Regarding the definition of "Governmental Entity," the TWDB received the following comments:

Comment

Senator Brandon Creighton and Representative Chris Paddie commented that only the Government Entity who is administering the loan, NOT the loan recipient, has the ability to grant waivers, even if the loan recipient can also classify as a Government Entity. The exemptions would be decided by the lender, not the borrower. As applied to the TWDB, the TWDB alone can make exemption determinations because the TWDB is the lending entity, even if the loan recipient can also classify as a Government Entity (such as certain water authorities). AAM also commented that loan recipients should not be vested with the authority to police their adherence to the Texas law and the terms of the loan agreement with the TWDB. EBAA also commented that it is their belief that the Legislature clearly outlined the entity administering the loan is the only entity that would be empowered to grant waivers pertaining to that loan. The MCA also commented that loan recipients should not be vested with the authority to police their adherence to the Texas law and the terms of their financing agreement with the TWDB. Nucor also commented that it is their understanding that the recipient or borrower of state funds would NOT be allowed to make exemption determinations. TxWIN also commented that the TWDB maintains the sole discretion to grant project waivers to SB 1289.

Response

The TWDB acknowledges and agrees with these comments. Because the proposed language leaves this authority solely with the TWDB, no changes have been made in response to these comments.

Comment

TxWIN commented that although they believe that the TWDB maintains the sole discretion to grant project waivers to SB 1289, they believe the "de minimus" waivers adopted in the guidance should be utilized at the discretion of the prime contractor, documented, and made available for review by the project owner and submitted to the TWDB as appropriate.

Response

The "de minimus" waiver and processes involved with this waiver are addressed in the guidance document. No changes to the rules have been made in response to this comment. All nation-wide EPA waivers, including the "de minimus" waiver, have been removed from the guidance document.

Regarding the definition of "Produced in the United States," the TWDB received the following comments:

Comment

The MCA commends the TWDB for its incorporation of the following definition for "produced in the United States" in its proposed rule: "with respect to iron or steel products, a product for which all manufacturing processes, from initial melting through application of coatings, occur in the United States, other than metallurgical processes to refine steel additives."

Response

The TWDB acknowledges this comment, and no changes have been made.

Regarding Covered Iron and Steel Products, the TWDB received the following comments:

Comment

Senator Creighton and Representative Paddie commented that the list included in §363.41(b)(2)(A) is incomplete and should not be treated as an exhaustive list but only as an example of the types of products these requirements can apply to. Senator Creighton and Representative Paddie suggested adding the term "such as" before the incomplete list of items in order to minimize confusion and the risk of misapplication. The AAM commented that the TWDB proposal limits the scope of application of new Subchapter F of Chapter 2252 of the Texas Water Code by adopting a definition for the terms "iron and steel products" that will limit the scope of products covered by the newly enacted law. Nucor commented that because a definition of iron and steel products was not included in the statute, they would prefer a product list not be included in the rule. If however, a definition or iron and steel product is to be used, then they requested that the definition not be or claim to be an exhaustive list and instead provide that other iron and steel products could exist that are not mentioned here.

Response

The TWDB agrees that this list of covered products is not exhaustive and that including the phrase "such as" is warranted. The TWDB believes that some sort of definition is necessary in order to provide greater clarity to our borrowers on how to comply with these new requirements. Section 363.41(b)(2)(A) has been changed as follows:

(A) Iron and steel products--Products made primarily of iron or steel that are permanently incorporated into the public water system, treatment works, or agricultural water conservation Project, including, but not limited to: lined or unlined pipes and fittings, manhole covers and other municipal castings, hydrants, tanks, flanges, pipe clamps and restraints, valves, structural steel, reinforced precast concrete, construction materials.

Comment

Nucor commented that if the Board decides to include "structural steel" and "construction material" in the list of products, then the Board should also incorporate the EPA’s AIS Guidance on these terms in order to provide greater clarity.

Response

These definitions have been added to the associated guidance document in response to this comment. However, no changes have been made to the rules in response to this comment.

Comment

The Tarrant Regional Water District (TRWD) suggested deletion of "reinforced precast concrete" and "construction materials" from the list of "iron and steel products."

Response

The TWDB received feedback from multiple sources voicing the desire for TWDB rules on U.S. Iron and Steel to match the federal American Iron and Steel requirements as closely as possible within the legislative authority of the Texas Government Code and Water Code. Therefore, the TWDB drafted these rules using only language included in the Texas Government Code, the Texas Water Code, the United States Code, or the EPA’s AIS Guidance. The TWDB believes that other language should not be added. In order to ensure the TWDB’s borrowers can understand and comply with the U.S. Iron and Steel requirements, the TWDB believes that the existing rule language is necessary.

Comment

The TRWD suggested an exemption for stainless steel products, stating that these products, which are not expressly included within the U.S. Iron and Steel Legislation, are generally batch-produced and therefore difficult to include due to varying availability. The TRWD suggested including stainless steel as an exception by including the phrase "but excluding stainless steel" in the list of "iron and steel products" included in the definitions.

Response

Because the statutory language included in the Texas Government Code and Texas Water Code does not mention stainless steel, the TWDB does not believe that it should include stainless steel as an exception or exemption in the adopted rules. The means by which stainless steel could be exempted is through one of the statutorily defined exemptions, which are implemented through the waiver process.

Comment

TxWIN suggested adding language to the definition of "iron and steel products" stating the requirement only applies to items permanently incorporated into a project.

Response

Section 363.41(b)(2)(A) has been changed as follows:

(A) Iron and steel products--Products made primarily of iron or steel that are permanently incorporated into the public water system, treatment works, or agricultural water conservation Project, including, but not limited to: lined or unlined pipes and fittings, manhole covers and other municipal castings, hydrants, tanks, flanges, pipe clamps and restraints, valves, structural steel, reinforced precast concrete, construction materials.

Comment

TxWIN commented that the term "steel" should only refer to carbon steel, not specialty metals such as stainless steel, aluminum, or non-covered other metals. TxWIN requested that additional language to this effect be added in reference to iron and steel products and "construction materials." TxWIN requested amending the definition of "iron and steel products" to include "non-mechanical valves" rather than "valves."

TxWIN suggested amending the language to read as follows:

"(A) Iron and steel products--the following products made primarily of iron or carbon steel and permanently incorporated into a project: lined or unlined pipes and fittings, manhole covers and other municipal castings, hydrants, tanks, flanges, pipe clamps and restraints, non-mechanical valves, structural steel, reinforced precast concrete, construction materials. Construction materials composed on miscellaneous or specialty metals are not to be considered iron and steel products.

Response

The TWDB received feedback from multiple sources voicing the desire for TWDB rules on U.S. Iron and Steel to match the federal American Iron and Steel requirements as closely as possible within the legislative authority of the Texas Government Code and Water Code. Therefore, the TWDB drafted these rules using only language included in the Texas Government Code, the Texas Water Code, the United States Code, or the EPA’s AIS Guidance. The TWDB believes that other language should not be added. In order to ensure the TWDB’s borrowers can understand and comply with the U.S. Iron and Steel requirements, the TWDB believes that the existing rule language is necessary.

Comment

TxWIN requested a clarified list of "construction materials."

Response

Changes have been made to the associated guidance document in response to this comment. However, no changes have been made to the rule text in response to this comment.

Regarding Mechanical and Electrical Components, the TWDB received the following comments:

Comment

TxWIN requested amending the definition of "mechanical and electrical components, equipment, systems, and appurtenances" as follows:

(C) Mechanical and electrical components, equipment, system, and appurtenances--Includes but is not limited to pumps, motors, motor control centers, gear reducers, drives (including variable frequency drives), electric/pneumatic/manual accessories used to operate valves (such as electric valve actuators), mechanical or mechanized valves, mixers, gates, motorized screens (such as traveling screens), meters, blowers/aeration equipment, compressors, meters, sensors, controls and switches, supervisory control and data acquisition (SCADA), membrane bioreactor systems, membrane filtration systems, filters, clarifiers and clarifier mechanisms, rakes, grinders, disinfection systems, presses (including belt presses), conveyors, cranes, HVAC (excluding ductwork), water heaters, heat exchangers, generators, cabinetry and housings (such as electrical boxes/enclosures), lighting fixtures, electrical conduit, emergency life systems, metal office furniture, shelving, laboratory equipment, analytical instrumentation, dewatering equipment, electrical supports/covers/shielding, and other appurtenances related to an electrical system necessary for installation, operation or concealment. An electrical system includes all equipment, facilities, and assets owned by an electric utility, as that term is defined in §31.002 Utilities Code.

Response

The TWDB agrees with the inclusion of "but is not limited to," and this section of the adopted rule has been changed as follows:

(C) Mechanical and electrical components, equipment, system, and appurtenances--Includes, but are not limited to, pumps, motors, gear reducers, drives (including variable frequency drives), electric/pneumatic/manual accessories used to operate valves (such as electric valve actuators), mixers, gates, motorized screens (such as traveling screens), blowers/aeration equipment, compressors, meters, sensors, controls and switches, supervisory control and data acquisition (SCADA), membrane bioreactor systems, membrane filtration systems, filters, clarifiers and clarifier mechanisms, rakes, grinders, disinfection systems, presses (including belt presses), conveyors, cranes, HVAC (excluding ductwork), water heaters, heat exchangers, generators, cabinetry and housings (such as electrical boxes/enclosures), lighting fixtures, electrical conduit, emergency life systems, metal office furniture, shelving, laboratory equipment, analytical instrumentation, dewatering equipment, electrical supports/covers/shielding, and other appurtenances related to an electrical system necessary for operation or concealment. An electrical system includes all equipment, facilities, and assets owned by an electric utility, as that term is defined in §31.002 Utilities Code.

Because the other items are not listed in the Texas law, federal law, or EPA’s AIS Guidance, the TWDB has not included "motor control centers, mechanized valves, and meters" or "installation" in the adopted rule.

Regarding the term "Primarily," the TWDB received the following comments:

Comment

The AAM commented that it is not clear that the Texas Legislature intended that the TWDB include the terms that such products be "primarily" iron or steel.

Response

The TWDB received feedback from multiple sources voicing the desire for TWDB rules on U.S. Iron and Steel to match the federal American Iron and Steel requirements as closely as possible within the legislative authority of the Texas Government Code and Water Code. In order to ensure the TWDB’s borrowers can understand and comply with the U.S. Iron and Steel requirements, the TWDB believes that the existing rule language is necessary.

Comment

The MCA commented that including the term "primarily iron and steel" may seriously hamper the administration and enforcement of the new Texas law and will certainly contravene the Legislature’s intent underlying its enactment of the SB 1289 during the 85th Legislative Session.

Response

The TWDB received feedback from multiple sources voicing the desire for TWDB rules on U.S. Iron and Steel to match the federal American Iron and Steel requirements as closely as possible within the legislative authority of the Texas Government Code and Water Code. In order to ensure the TWDB’s borrowers can understand and comply with the U.S. Iron and Steel requirements, the TWDB believes that the existing rule language is necessary.

Regarding the Definition of "Project," the TWDB received the following comments:

Comment

The MCA commented on their concern that the proposed rule, together with the associated guidance document, will create loopholes by only applying the iron and steel requirements to iron and steel used in the phase of the project funded with a TWDB commitment. The MCA suggested following the EPA system for applying federal American Iron and Steel laws, which requires compliance for all construction necessary to complete the building or work regardless of the number of contracts or assistance agreements involved so long as all contracts and assistance agreements awarded are closely related in purpose, time, and place.

Response

The federal American Iron and Steel statute states that "funds made available from a State water pollution control revolving fund established under this subchapter may not be used for a project for the construction, alteration, maintenance, or repair of treatment works unless all of the iron and steel products used in the project are produced in the United States." 33 USC §1388 (emphasis added; similar language applicable to the Drinking Water State Revolving Fund). These federal statutes do not define "project." However, Texas Government Code §2252.201(5) does define "project." The relevant portions state that a project "means a contract between a governmental entity and another person, including a political subdivision, to: finance, refinance, or provide money from funds administered by a governmental entity for a project"… "to construct, remodel, or alter a building, a structure, or infrastructure." The iron and steel requirements of SB 1289 only apply to iron or steel products used in the project, which is defined. Because project only includes (in summary) a contract to finance the construction of a building, structure, or infrastructure, the TWDB believes it does not have the authority to require iron and steel produced in the United States to be used for construction if the TWDB is not financing that construction. The federal statute language is much broader than the state statute language and does not define "project." No changes have been made in response to this comment.

Comment

The TRWD suggested the following language be added to the definition of "project": "A contract between the board and a person or political subdivision for a phase, section or component of a public project for which TWDB financing is provided and which requires the purchase of Covered Iron and Steel Products." The TRWD commented that the purpose of this language is to clarify that the 20 percent cost exemption (exemption for when U.S. iron or steel products will increase the total cost of the Project by more than 20 percent) is to be calculated based on the readily divisible portions of the project, not the entire cost of a very large, multi-phase "project" that is implemented over a period of years. If the definition of "project" remains as defined, the TRWD is concerned that the 20 percent threshold could be applied on a project-wide basis, with adverse consequences.

Response

Because of the definition of "project" included in Texas Government Code §2252.201(5), the TWDB agrees that the 20 percent cost exemption should be calculated based on each individual contract for TWDB financing for construction projects. This topic is addressed in the associated guidance document. Because the issue is addressed in the guidance document and because the rule incorporates the statutory definition (with certain elements moved for clarity purposes), no changes have been made in response to this comment.

Regarding Exemptions, the TWDB received the following comments:

Comment

The AAM commented that it is not clear that the Texas Legislature intended that the TWDB except "mechanical and electrical components" from the term "iron and steel products."

Response

The TWDB received feedback from multiple sources voicing the desire for TWDB rules on U.S. Iron and Steel to match the federal American Iron and Steel requirements as closely as possible within the legislative authority of the Texas Government Code and Water Code. In order to ensure the TWDB’s borrowers can understand and comply with the U.S. Iron and Steel requirements, the TWDB believes that the existing rule language is necessary.

SB 1289 specifically removed "manufactured goods" from the existing language included in Texas Water Code §17.183. The TWDB believes that this shows intent to not require manufactured goods to be produced in the United States. It is TWDB’s understanding that many of these "manufactured goods" are mechanical and electrical components as that phrase is used in federal guidance.

Comment

The North Harris County Regional Water Authority (NHCRWA) suggested adding the following language to §363.41(b)(1): Except as provided by Subsections (c) and (d), this section applies to projects with the board and resulting bid documents submitted to the board or construction contracts entered into after September 1, 2017. TRWD suggested similar language, as follows: This section applies to Projects with the board and resulting bid documents submitted to the board or construction contracts entered into after September 1, 2017, except as provided in Subsection (d).

Response

The TWDB agrees with this comment and §363.41(b) has been changed to read as follows:

(1) Except as provided by subsections (c) and (d) of this section, this section applies to Projects with the board and resulting bid documents submitted to the board or construction contracts entered into after September 1, 2017.

Comment

TxWIN suggested amending the language in §363.41(c)(2)(A) as follows:(2) The following components are exempt from complying with Section 363.41(b)(3) as they are not iron or steel products:

(A) mechanical and electrical components, equipment, systems, and appurtenances;"

Response

The TWDB agrees with this comment and this is how the language appears in the proposed rule. No changes have been made.

Comment

The TRWD suggested amending the language in §363.41(b)(3) as follows:

(3) Unless exempt or a wavier is obtained, political subdivisions and persons with Projects funded with financial assistance from the board shall obtain Executive Administrator approval of contract documents, including engineering plans and specifications and bid documents, prior to receiving bids and awarding construction contracts. Contract documents and bid documents provided to all bidders must include language requiring that any iron or steel products produced through a manufacturing process used in the Project, be produced in the United States, specifically where funds will be used to…

Response

The TWDB agrees that this language should be clearer. The TWDB understood the TRWD’s comment to intend that construction contracts and bid documents for projects that have received a waiver or fall under one of the exceptions would not need to include the required Iron and Steel language. All TWDB borrowers must obtain Executive Administrator approval of contract documents. Therefore, the TWDB made the following change:

(3) Political subdivisions and persons with Projects funded with financial assistance from the board shall obtain Executive Administrator approval of contract documents, including engineering plans and specifications and bid documents, prior to receiving bids and awarding construction contracts. Except as provided by subsection (c) and (d) of this Section, contract documents and bid documents provided to all bidders must include language requiring that any iron or steel products produced through a manufacturing process used in the Project, be produced in the United States, specifically where funds will be used to…

Regarding Waivers, the TWDB received the following comments:

Comment

The AAM commented that they suggest revising the proposed rule to provide additional information about the way the cost and public interest waivers will be applied. The MCA also commented that the proposed rule should be revised to provide additional information about the manner in which the statutory waivers will be applied.

Response

The TWDB agrees that more clarity on the cost and public interest waivers is warranted. However, the TWDB believes that this type of information is better suited for the associated guidance document, which will be periodically updated to provide more clarity as these types of waivers are received, evaluated, and processed. No changes have been made to the rule text in response to this comment.

Comment

The MCA commented that it is not evident from the proposed rule at what point in the contracting process that waiver request will be deemed timely or what information is necessary to justify a requested waiver.

Response

The TWDB believes that this issue is better addressed in the associated guidance document, not the adopted rules. No changes have been made to the rules in response to this comment

Comment

TxWIN commented that there is not any direction in the rule around what constitutes "sufficient quantities" or "reasonable availability" when contracts and bid document are executed.

Response

The TWDB agrees that greater clarity on these waivers may be needed. However, because this is a new process for the TWDB and its borrowers, the TWDB cannot predict at this time what types of waivers will need to be developed under this public interest waiver exception. For this reason, the TWDB believes that the issue is better addressed in the associated guidance document, which will be periodically updated to provide more clarity as these types of waivers are received, evaluated, and processed. Additionally, all waiver requests and responses will be available on the TWDB’s website.

Comment

The TRWD suggested adding language to specify certain situations which may lead to a public interest waiver under §363.41(c)(1)(C). These include "substantial increased or disproportionate cost, although not in excess of the 20% overall project threshold;" "increases in engineering and related costs;" "the additional cost of an individual product would exceed a stated dollar amount;" "if compliance would cause delays which would threaten the public interest (e.g., water supply in times of drought or system reliability);" or "safety or similar considerations."

Response

The TWDB agrees that greater clarity on these waivers may be needed. However, because this is a new process for the TWDB and its borrowers, the TWDB cannot predict at this time what types of waivers will need to be developed under this public interest waiver exception. For this reason, the TWDB believes that the issue is better addressed in the associated guidance document, which will be periodically updated to provide more clarity as these types of waivers are received, evaluated, and processed. Additionally, all waiver requests and responses will be available on the TWDB’s website.

Regarding SWIFT, the TWDB received the following comments:

Comment

The NHCRWA commented that the TWDB rules should include Section 6(b) of SB 1289 because this section is located in the Session Laws, rather than the Government Code or Water Code. In the public hearing, NHCRWA commented that Section 6(b) was intended to grandfather multi-year projects where a portion was approved before May 1, 2019. TWSP also commented that the rule should precisely reflect the language of Section 6(b) of SB 1289. The NHCRWA suggested amending §363.41(d) to read: "Section 363.41(b) does not apply to a project described by Section 15.432 or 15.472, Water Code, for which the board, by a resolution adopted before May 1, 2019, has approved an application for financial assistance for any portion of the financing of the project, as provided by SECTION 6(b), Senate Bill 1289, 85th Legislature Regular Session."

Response

The TWDB believes that the proposed language conforms to the intent of the legislation and conforms to the terminology used by the TWDB. The TWDB believes that the language included in the proposed rule provides greater clarity to TWDB borrowers. No changes have been made in response to this comment. However, the TWDB has added a reference to Section 6(b), Senate Bill 1289 in the preamble.

Regarding Compliance, the TWDB received the following comments:

Comment

TxWIN commented that referrals to the Attorney General should be reserved solely for knowing and willful violations of the law. TxWIN suggested amending the language of §363.71(b) as follows:

"(b) Should any information obtained by the executive administrator indicate noncompliance with any agreements, the executive administrator shall require the political subdivision to take timely corrective action. Failure to correct problems may result in loss of funds. Further, knowing and willful noncompliance with any agreements by any party with contractual obligations to the Texas Water Development Board may be cause for referral to the attorney general.

Response

The TWDB believes that these changes are not necessary. No changes have been made in response to this comment.

The TWDB also received various comments that were related to the associated guidance document. The TWDB acknowledges those comments and will consider them outside of this adopted rulemaking.

DIVISION 1. INTRODUCTORY PROVISIONS

31 TAC §363.2

STATUTORY AUTHORITY

This rulemaking is adopted under the authority of Texas Water Code §6.101 and Texas Government Code §2252.202.

Texas Water Code Chapters 15, 16, and 17 and Texas Government Code Chapter 2252 are affected by this rulemaking.

The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority.

Filed with the Office of the Secretary of State on April 16, 2018.

TRD-201801631

Todd Chenoweth

General Counsel

Texas Water Development Board

Effective date: May 6, 2018

Proposal publication date: December 22, 2017

For further information, please call: (512) 463-7686


DIVISION 4. PREREQUISITES TO RELEASE OF STATE FUNDS

31 TAC §363.41

STATUTORY AUTHORITY

This rulemaking is adopted under the authority of Texas Water Code §6.101 and Texas Government Code §2252.202.

Texas Water Code Chapters 15, 16, and 17 and Texas Government Code Chapter 2252 are affected by this rulemaking.

§363.41.Engineering Design Approvals.

(a) An applicant with a commitment of financial assistance from the board shall obtain Executive Administrator approval of contract documents, including engineering plans and specifications and bid documents, prior to receiving bids and awarding construction contracts. The applicant shall submit two copies of contract documents, which shall be as detailed as would be required for submission to contractors bidding on the work, and which shall be consistent with the engineering feasibility information submitted with the application. An additional copy of the contract documents is required for water supply projects requiring commission review. The contract documents must contain the following:

(1) provisions assuring compliance with the board's rules and all relevant statutes;

(2) provisions providing for the political subdivision to retain a minimum of 5.0% of the progress payments otherwise due to the contractor until the building of the project is substantially complete and a reduction in the retainage is authorized by the executive administrator;

(3) a contractor's act of assurance form to be executed by the contractor which shall warrant compliance by the contractor with all laws of the State of Texas and all rules and published policies of the board; and

(4) any additional conditions that may be requested by the executive administrator.

(b) Engineering Design Approvals for those Projects Required to use Iron or Steel Products Produced in the United States.

(1) Except as provided by subsections (c) and (d) of this section, this section applies to Projects with the board and resulting bid documents submitted to the board or construction contracts entered into after September 1, 2017.

(2) In this section, the following terms have the assigned meanings:

(A) Iron and steel products--Products made primarily of iron or steel that are permanently incorporated into the public water system, treatment works, or agricultural water conservation Project, including, but not limited to: lined or unlined pipes and fittings, manhole covers and other municipal castings, hydrants, tanks, flanges, pipe clamps and restraints, valves, structural steel, reinforced precast concrete, construction materials.

(B) Manufacturing Process--The application of a process to alter the form or function of materials or elements of a product in a manner that adds value and transforms the materials or elements into a new finished product functionally different from a finished product produced merely from assembling the materials into a product or elements into a product.

(C) Mechanical and electrical components, equipment, systems, and appurtenances--Include, but are not limited to, pumps, motors, gear reducers, drives (including variable frequency drives), electric/pneumatic/manual accessories used to operate valves (such as electric valve actuators), mixers, gates, motorized screens (such as traveling screens), blowers/aeration equipment, compressors, meters, sensors, controls and switches, supervisory control and data acquisition (SCADA), membrane bioreactor systems, membrane filtration systems, filters, clarifiers and clarifier mechanisms, rakes, grinders, disinfection systems, presses (including belt presses), conveyors, cranes, HVAC (excluding ductwork), water heaters, heat exchangers, generators, cabinetry and housings (such as electrical boxes/enclosures), lighting fixtures, electrical conduit, emergency life systems, metal office furniture, shelving, laboratory equipment, analytical instrumentation, dewatering equipment, electrical supports/covers/shielding, and other appurtenances related to an electrical system necessary for operation or concealment. An electrical system includes all equipment, facilities, and assets owned by an electric utility, as that term is defined in §31.002 Utilities Code.

(D) Political subdivision--Includes a county, municipality, municipal utility district, water control and improvement district, special utility district, and other types of water districts, including those created under Texas Constitution Article III, Section 52 or Article XVI, Section 59, and nonprofit water supply corporations created and operating under Texas Water Code, Chapter 67.

(E) Produced in the United States--With respect to iron or steel products, a product for which all manufacturing processes, from initial melting through application of coatings, occur in the United States, other than metallurgical processes to refine steel additives.

(F) Project--A contract between the board and a person or political subdivision.

(3) Political subdivisions and persons with Projects funded with financial assistance from the board shall obtain Executive Administrator approval of contract documents, including engineering plans and specifications and bid documents, prior to receiving bids and awarding construction contracts. Except as provided by subsections (c) and (d) of this section, contract documents and bid documents provided to all bidders must include language requiring that any iron or steel products produced through a manufacturing process used in the Project, be produced in the United States, specifically where funds will be used to:

(A) construct, remodel, or alter buildings, structures, or infrastructure; or

(B) supply a material for a project between the board and a person or a political subdivision; or

(C) finance, refinance, or provide money from funds administered by the board for a project.

(c) Exemptions.

(1) Section 363.41(b)(3) does not apply if the board or Executive Administrator has made a determination that:

(A) iron or steel products, produced in the United States, to be used in the Project are not:

(i) produced in sufficient quantities; or

(ii) reasonably available at the time contract documents and bid documents are executed with contractors or subcontractors; or

(iii) of a satisfactory quality to be used in the Project; or

(B) the use of iron or steel products produced in the United States will increase the total cost of the Project by more than 20 percent; or

(C) complying with the use of iron or steel products as required by this section is inconsistent with the public interest.

(2) The following components are exempt from complying with §363.41(b)(3) as they are not iron or steel products:

(A) mechanical and electrical components, equipment, systems, and appurtenances; and

(B) iron or steel products that are not permanently incorporated into a Project.

(d) Section 363.41(b) does not apply where the board has adopted a resolution approving an application for financial assistance before May 1, 2019, for any portion of financing as described by §§15.432 or 15.472, Water Code.

The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority.

Filed with the Office of the Secretary of State on April 16, 2018.

TRD-201801635

Todd Chenoweth

General Counsel

Texas Water Development Board

Effective date: May 6, 2018

Proposal publication date: December 22, 2017

For further information, please call: (512) 463-7686


DIVISION 5. CONSTRUCTION PHASE

31 TAC §363.51

STATUTORY AUTHORITY

This rulemaking is adopted under the authority of Texas Water Code §6.101 and Texas Government Code §2252.202.

Texas Water Code Chapters 15, 16, and 17 and Texas Government Code Chapter 2252 are affected by this rulemaking.

The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority.

Filed with the Office of the Secretary of State on April 16, 2018.

TRD-201801632

Todd Chenoweth

General Counsel

Texas Water Development Board

Effective date: May 6, 2018

Proposal publication date: December 22, 2017

For further information, please call: (512) 463-7686


DIVISION 6. POST-CONSTRUCTION RESPONSIBILITIES

31 TAC §363.71

STATUTORY AUTHORITY

This rulemaking is adopted under the authority of Texas Water Code §6.101 and Texas Government Code §2252.202.

Texas Water Code Chapters 15, 16, and 17 and Texas Government Code Chapter 2252 are affected by this rulemaking.

The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority.

Filed with the Office of the Secretary of State on April 16, 2018.

TRD-201801633

Todd Chenoweth

General Counsel

Texas Water Development Board

Effective date: May 6, 2018

Proposal publication date: December 22, 2017

For further information, please call: (512) 463-7686