Utility rates to rise to fund water pipe replacement

The Devine City Council voted unanimously to raise utility rates in order to repay over $9 million in financing approved by the Texas Water Development Board (TWDB) to replace asbestos cement and cast iron water pipes throughout the city.
Base water rates will rise from $23.34 to $38.14 for most residential customers, while sewer rates will go up by five percent.
The rate increases will not go into effect until 30 days after Council passes Ordinances authorizing them.
Mark McLiney of SAMCO Capital Markets, a financial advisor for the City, explained that the rate increase is one of the conditions of the TWDB’s funding, which includes a $500,000 grant, a $6.6 million loan at zero percent interest, and a $2.7 million loan at a subsidized interest rate that is yet to be determined.
“We were approved for a revenue bond, solely supported by revenues generated by the [utility] system,” McLiney said. “So only the utility system is supporting this, meaning we have to have revenue sufficient to cover the debt without relying on ad valorem taxes.
“This project will not and cannot cause taxes to go up. This has to be supported solely by your utility system.”
The TWDB’s other condition is that the City must adopt a State-approved water conservation plan.
McLiney estimated that the City will realize over $4 million in interest rate savings over the life of the TWDB loan.
“Getting $6 million at a zero percent interest rate is not very common,” McLiney said. “The grant and the zero percent interest rate is rare; we don’t see that very often. It really fit well for the City of Devine as far as becoming the most cost-efficient to get this financing.”
The TWDB also required the City do a rate study of the utility rates, which was carried out by the Texas Rural Water Association (TRWA). Interim City Administrator Dora Rodriguez presented Council with two options for raising water rates, based on the first loan payment, scheduled for February 2019.
“We need to make sure that we have that money,” Rodriguez said. “[The TWDB] want to see that we’ve done some kind of an increase.”
Plan A included a water rate increase to fund loan payments as well as allow the City to set money aside for operational and emergency expenses.
“This is something that the Texas Water Development Board wants to see, that we are continuing to put money aside in case the Edwards [Aquifer] goes down, the wastewater plant, something happens that we have money to be able to stay in operation,” Rodriguez said.
Plan B increased water rates only enough for loan payments.
“That’s a $15 increase,” Mayor Bill Herring said. “At one time, we anticipated if we hadn’t gotten this great loan, if we had to pay the normal interest, we were going to have to go up $30.”
District 5 Councilman Cory Thompson asked if it was possible to leave the base rate alone and increase the cost of water per 1,000 gallons.
“There’s no way just to increase [the price per 1,000 gallons], or tier the system where those people who are trying to conserve don’t get hit as hard as those people who, say, have pools in their backyard?” Thompson asked.
“The base rate guarantees that the Water Board is repaid,” McLiney said.
District 3 Council David Espinosa made a motion to go with Plan B, and received a second from District 2 Councilman Steve Lopez. The motion passed 4-0 with votes from Thompson and District 4 Councilwoman Jennifer Schott.
District 1 Councilman David Valdez was absent.
On the sewer side, Plan A called for increasing the base rate of $19.36 to $20.32 and increasing the rate per 1,000 gallons from $3.10 to $3.25.
In Plan B, the base rate included the first 1,000 gallons, with every 1,000 gallons after that priced at $3.25.
Residential sewer rates are calculated yearly on the average metered water usage from December, January, and February.
“Why do we have to go up on this when this is not actually water?” Thompson asked. “It’s only the water lines we’re replacing.”
“To generate the revenue we need,” City Accountant Denise Duffy said.
McLiney explained that both water and sewer make up the utility system.
“Your utility system, if you think about your audit, reports revenues and expenses,” McLiney said. “It doesn’t break it down into water or sewer, it’s just a utility system. So you could do all the rates all on water, you could in theory do it all on sewer, or combine it on the two.”
An Espinosa-Schott motion to approve Plan B passed unanimously.
According to a timeline provided by McLiney, interest rates will be available to the City on July 10, and Council will have the opportunity to authorize Ordinances issuing the revenue bonds on July 17. Funds will be available to the City on August 14, and water pipe replacement will begin at some point after that.
Both the water and sewer rates may have to be raised again in October, contingent upon interest rates and the revenue generated from this increase.
By Marly Davis
Staff Writer