Water rates are rising

Photo by Maggie Osterberg

The 86th Texas Legislature is in session, and water utility customers from across the state should be watching two issues that have the potential to impact water rates and the ability of rural utilities to serve their customers in the future. Many consumers are unaware of how these issues may affect them and cause their water rates to increase.

The first issue involves “CCN Decertification.” A certificate of convenience and necessity, or CCN, is how the state defines the geographic area within which a utility has the exclusive right and legal obligation to supply water to customers. As Texas has grown, conflicts have arisen between cities, land developers and rural water systems as to who should provide water service to newly developing areas.

In 2005, in response to developer and city complaints, the Legislature made it easier for landowners/developers to decertify, or get out, of a utility’s CCN and instead receive service from a city or another provider. That law balanced utilities’ interests with developers’ interests by considering a utility’s ability to serve the area. In 2011, another law was passed, allowing a landowner with at least 25 acres to obtain an automatic decertification without considering the water utility’s investment and capability to serve the area. That law intended that a decertified utility would be “made whole” through compensation for their lost investment, but the way the law has been implemented by the state’s Public Utility Commission, utilities are not receiving any compensation.

These laws have put water utilities in a tough position; they’re required by the state to invest and plan for future growth in their service area, but those investments are often being taken away, especially in high-growth areas where systems are close to realizing their investment.

How does this impact current customers? Through their water rates, current customers have been partially, or in some cases fully, funding the investments necessary to accommodate future growth. New customers share in a utility’s fixed costs and help offset future cost increases. As a result, everyone benefits from economies of scale. However, when the new customers connect instead to someone else’s utility because of decertification, and the original utility isn’t compensated for that loss, remaining customers’ water rates will increase.

The second issue pertains to the permitting of groundwater. Most rural utilities provide water to their customers by drilling wells and using the local groundwater. In many areas of the state, groundwater conservation districts, or GCDs, regulate the amount of groundwater that can be pumped by issuing permits. While many GCDs issue permits to water systems based on the amount of water they need to serve households and businesses in their communities, others have begun issuing permits to all applicants, including water utilities, based upon the amount of land an applicant owns.

This type of permitting doesn’t make sense for water utilities because they often own only the land around their wellsite. In these GCDs, utilities are required to purchase large amounts of land or interest in groundwater rights. Some GCDs additionally require that utilities purchase land or rights touching their well site. If these aren’t available for purchase, the utility cannot fully use its investment.

How does this affect customers? Many utility customers are also landowners who have ownership interests in the groundwater and rely on their utility to pump, treat and deliver it through pipes. If utilities are required to purchase large amounts of land or groundwater rights, rates will increase to cover these additional costs. If landowners in an area sell all their water to the highest bidder and no credit is reserved for the local utility, the utility will not be able to use this local resource to serve their community in the future.

If the Legislature requires GCDs, when issuing permits, to consider a utility’s service area needs or a portion of the ownership interest of the utility’s customers in their local water resource, it will ensure a sustainable and affordable water supply into the future.

Either of these existing scenarios will raise water rates for consumers. This session we are dedicated to these two issues, and we are committed to keeping water affordable and accessible for all Texans.

Disclosure: The Texas Rural Water Association has been a financial supporter of The Texas Tribune, a nonprofit, nonpartisan news organization that is funded in part by donations from members, foundations and corporate sponsors. Financial supporters play no role in the Tribune's journalism. Find a complete list of them here.

Lara Zent

Executive director, general counsel, Texas Rural Water Association

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