Texas Submetering Laws Every Operator Should Know

If you bill tenants for water, sewer, or electricity at a Texas property, you're operating under one of the most specific submetering rulebooks in the country. Texas doesn't leave utility billing to the honor system. The Public Utility Commission of Texas (PUCT) spells out who has to register, what you can charge, and exactly how much profit you're allowed to make on utilities passed through to tenants. (Spoiler: it's zero.)

Most operators find this out the hard way, after a tenant complaint or a records request. The rules aren't complicated, but they are strict, and the penalties for getting them wrong land on the property owner, not the billing vendor. If you run apartments, condos, or a manufactured home rental community in Texas, here's what the PUCT requires, the difference between submetering and allocation, and the violations that quietly cost operators money every billing cycle.

Submetering vs. Allocation: Know Which One You're Doing

Texas law treats these as two different billing methods, and confusing them is where a lot of operators get tripped up.

Submetering means every dwelling unit has its own meter, and you bill each tenant for their actual measured usage. This is the cleaner, fairer method, and it's what the state prefers.

Allocation means you don't have individual meters, so you divide the master meter bill among tenants using an approved formula. Texas allows a few allocation methods, including:

Occupancy based: the number of occupants in a unit divided by total occupants at the property
Combination (square footage plus occupancy): for apartments, square footage can be used only when blended with occupancy, with no more than 50% of the allocation based on square footage. Pure square-footage allocation is not allowed for apartment houses.
For manufactured home communities, the size of the rented space divided by the size of all rental spaces

Whichever method you use, it has to be disclosed in the lease, and you can only change the method after giving tenants proper written notice (90 days for the allocation formula). You can't quietly switch formulas mid tenancy because the math suddenly favors you.

Pick the method your meters support

If your units aren't individually metered, you're doing allocation, full stop. Calling it "submetering" in a lease when there are no submeters is a misrepresentation that can invalidate your billing. Match the language in your lease to what's actually installed.

What the PUCT Requires Before You Send a Single Bill

The first rule of Texas submetering is that you register before you bill. This catches a surprising number of operators, especially those who inherit a property and assume the prior owner's setup carries over. It doesn't.

For water and wastewater, an owner who intends to bill tenants on a submetered or allocated basis, or who changes the billing method, must register with the PUCT. This is done through the Registration of Submetered or Allocated Utility Service form, filed for each property, under the rules in 16 Texas Administrative Code Chapter 24, Subchapter I (relating to owner registration and records). The statutory backbone is the Texas Water Code, Chapter 13, Subchapter M (Sections 13.502 through 13.505), which authorizes submetering and allocation and directs the PUCT to set the standards.

Water submetering oversight historically sat with the TCEQ before the water utility functions moved under the PUCT, so older guidance may still reference TCEQ rules. Confirm current PUCT registration requirements and forms before you file.

Beyond registration, the PUCT expects you to:

Use appropriate metering equipment and maintain it in accurate working order
Disclose submetering or allocation clearly in every lease, including that common area charges are the owner's responsibility
Keep adequate records of meter readings, calculations, and bills, and make them available to tenants for inspection during reasonable business hours
Correct billing errors by refunding tenants for the full overcharge period (undercharges may be backbilled, but only to a limited extent, generally about 6 months, under 16 TAC Section 24.283)

That last point matters. If your billing is found to be in error, you owe the correction for the entire period the error ran, not just the last cycle a tenant happened to catch.

The Golden Rule: You Can't Profit on Utilities

This is the single most important thing to understand about Texas submetering laws: you cannot mark up the utility. The property is a pass through, not a profit center.

For water and sewer, an owner may not impose any charge on the tenant over and above the cost per gallon plus any applicable taxes and surcharges that the retail public utility charges the property (Texas Water Code Section 13.503). For electricity, the rule mirrors it. Under 16 Texas Administrative Code Section 25.142, the owner may not impose any extra charges over what the retail electric provider or utility bills the owner. The electric bill calculation is spelled out precisely: take the net total charges plus applicable tax, divide by the total kilowatt hours, and that's the average cost per kWh you pass to tenants.

There are a few narrow, capped fees Texas does allow, and knowing them keeps you from either overcharging or leaving legitimate cost recovery on the table.

Charge	Water / Sewer	Electric
Markup on the utility rate	Prohibited	Prohibited
Billing common area usage to tenants	Prohibited	Prohibited
Service / billing fee	Up to 9% of submetering costs per unit	Not permitted as a separate charge
Late payment fee	Up to 5% on a submetered water bill	One-time penalty up to 5%
Deposit or reconnect fee	Restricted	Prohibited unless specifically allowed
Fees on Section 8 / LIHTC units	Service charge prohibited	Restricted

The 9% and 5% caps are ceilings, not defaults

The water service charge maxes out at 9 percent of the submetering costs allocated to each unit, and late fees top out at 5 percent. These are limits, not rates you're entitled to by default. And you cannot charge a service fee to a tenant in a unit receiving low income housing tax credits or Section 8 voucher assistance. When in doubt, confirm the current PUCT fee schedule before it hits a lease.

Water and Electric Are Two Different Rulebooks

Operators often assume one submetering policy covers the whole property. It doesn't. Water and sewer live under the Water Code and PUCT Chapter 24; electric submetering lives under the Utilities Code and PUCT Chapter 25, Subchapter G. The principles rhyme, but the specifics differ. Water billing allows a service charge of up to 9 percent, for example, while electric permits no separate service charge at all. If you run a mixed portfolio, you need both rulebooks, not one blended policy.

One rule carries across both: common area consumption is always the owner's cost. Hallway lighting, amenity spaces, irrigation, leasing offices, none of it can be pushed onto tenant bills. If your allocation formula is quietly sweeping common area usage into tenant charges, that's a violation regardless of which utility it is.

Texas billing compliance shouldn't require a law degree

Vitality handles submetered and allocated billing with the PUCT rules built in, so your fees stay capped and your markups stay at zero. Starting at $0.50 per unit.

Talk to the Team

Common Violations and What They Cost

The violations that catch Texas operators aren't exotic. They're everyday billing habits that quietly cross a line:

Billing without registering. Sending bills before your PUCT registration is on file for the property. Common after acquisitions.
Marking up the rate. Adding a per unit premium, an "administrative" upcharge, or rounding the cost per kWh in your favor. Any amount above true pass through cost is a markup.
Passing common area usage to tenants. Folding hallway, amenity, or irrigation consumption into the allocation pool.
Overcharging on fees. Charging a water service fee above 9 percent, a late fee above 5 percent, or hitting a Section 8 or LIHTC tenant with a service charge.
Sloppy or unavailable records. Failing to keep meter readings and calculations, or refusing a tenant's request to inspect them.

The cost isn't a one time slap on the wrist. When billing is found to be in error, you owe refunds for the entire overcharge period, not one cycle. Tenants can file complaints with the PUCT, and under Texas Water Code Section 13.505 a tenant can recover three times the amount of the overcharge, a civil penalty of one month's rent per violation, plus reasonable attorney's fees. The liability sits with the property owner, and it compounds quietly across every unit until someone catches it.

Why In-House Billing Keeps You Compliant

Here's the part billing service companies won't advertise: outsourcing your billing doesn't outsource your compliance. The PUCT registration is in the owner's name, the refund liability is the owner's, and the records produced on demand are the owner's. Your vendor sends the bills; you carry the risk.

Operators who bring utility billing in-house get the structural advantage of owning the whole process:

Register right

Track PUCT registration status per property so no bill goes out before the paperwork is on file.

Cap the fees

Build the 9% and 5% ceilings and the zero-markup rule directly into billing so overcharges never happen.

Keep the records

Maintain meter readings, calculations, and bills in one place, ready for any tenant inspection or PUCT request.

When you control the billing, you control the compliance. You can see exactly what rate you're passing through, prove common areas were excluded, and produce a clean audit trail in minutes instead of digging through a vendor's PDF exports.

The Bottom Line

Texas submetering laws come down to a few unbending principles: register before you bill, never profit on the utility, keep your fees under the caps, and never push common area costs onto tenants. Get those right and the rest is bookkeeping. Get them wrong and you're refunding overcharges across your whole portfolio while a tenant complaint works its way through the PUCT.

The operators who handle this cleanly own their billing instead of renting it from a service company. Their rates are true pass throughs, their fees are capped, and their records are audit ready, because they built the rules into the system instead of trusting a vendor to remember them.

For the full picture of how requirements differ across the country, start with our state-by-state utility billing compliance guide, and if you also operate in California, our breakdown of California submeter testing requirements covers a very different set of rules for the same job. Know the rules, own the process, and keep the change.

Sources: Texas Water Code Chapter 13, Subchapter M (Sections 13.502 through 13.505), PUCT Water and Sewer Substantive Rules Chapter 24, Subchapter I, PUCT Electric Substantive Rules 16 TAC Section 25.142, and PUCT Water and Sewer Submetering or Allocation guidance. Verify all citations against current PUCT rules before relying on them.

Aug 11, 2026

Texas Submetering Rules Every Operator Should Know

Key Takeaways