Drought Scrambles Water Utilities' Finances

Many of the effects of the worst one-year drought in recorded Texas history are obvious: brown lawns, shriveled crops, wildfires and even cracked building foundations.

Less obvious is the impact on the finances of water utilities around the state. A number of cities are making more money than usual from selling water this year, even as they gradually tighten usage restrictions, because people are using more water to compensate for the lack of rain. But some small West Texas towns that have already implemented severe water restrictions are seeing a sharp drop in revenue — just at a time when they need to replace breaking pipes and seek expensive new supplies.

"Revenue is way down just because we're restricting everybody's usage," said John Jacobs, the mayor of Robert Lee, a town north of San Angelo that has banned outdoor watering because its reservoir is nearly empty. He estimates that revenues are down about 40 percent this year.

In Llano, another town that has banned outdoor watering, revenues may be down about 10 percent this year, estimates Finley deGraffenried, the city manager. However, he said, the city has offset the hit it takes on water with increased revenues from selling electricity, which has been in high demand this summer due to extra air-conditioning use to combat the heat.

Elsewhere in the state, many larger cities are in a very different situation. San Marcos, San Antonio, Odessa and Lubbock are among those with revenues that are either higher than normal or higher than last year's.

Tom Taggart, director of the San Marcos utility, said that the drought tends to mean more money for the utility "until you're in the deeper-stage restrictions." He estimates that revenues are up roughly 10 percent this year, due to more watering before restrictions (now twice a week) took effect. 

Water managers point out that restrictions do not necessarily reduce water use. San Marcos and San Antonio, for example, limit watering to one day a week and certain hours of the day (Austin will tighten its restrictions to a similar level next week), but there are no limits on how much people can use during their window. Hand-watering also does not get banned until things get dire, so Anne Hayden, a spokeswoman for the San Antonio Water System, said that there are "a lot of people out there on the lawn holding the hose and watering." SAWS is nearly $12.7 million above budget this year, she said.

If the drought continues and restrictions get much stronger, the drought may start to reduce usage, and revenues.

But even those utilities that are taking in more money now face higher costs as the drought wears on. Water pipes are bursting around the state as they shift in dry soil — Austin, for example, is seeing double its usual breakage rates, according to the Austin American-Statesman. And that's expensive: Greg Meszaros, director of the Austin Water Utility, told the Tribune earlier this year that replacing broken pipes, which must be dug up from underground, can cost $350 per foot. 

It also results in a loss of unsold water. Houston, which has particularly bad pipe-breaking problems due to its clay-like soil, can attest to this. The Houston Chronicle reported last week that usage hit an all-time high even as restrictions were put in place, with the pipe problems being a factor.

Water utilities — some of which already struggle under high debt burdens due to the amount of expensive infrastructure they must build — are also spending more to secure new supplies. In the Permian Basin, where rain has been minimal and supplies are tight, the Colorado River Municipal Water District is spending $142 million to build a pipeline to new groundwater supplies, which will send utility bills significantly higher in Midland, Odessa and other cities in the area. Amarillo recently agreed to spend more than $100 million to buy groundwater from T. Boone Pickens' company.

As lake levels dwindle, cleaning costs may increase as algae and other factors diminish the quality of the water. This is the case in Robert Lee, for example, according to Jacobs, the mayor. (Lower water use may decrease some water-related expenses, like pumping costs, however.)

For ordinary Texans, the water turmoil often means one thing: higher rates. Corpus Christi is already planning a 30-cent-per-month rate rise in anticipation of stricter water restrictions cutting into revenues. In Robert Lee, "I'm afraid rates are going to be pretty high next year," Jacobs said.

Water managers are also trying to stabilize rates, to keep revenues from going up (at first, at least) in dry years as people use more water and plunging during wet years as people use less and rely more on rain. That means making people pay more no matter how much, or little, they use.

In Austin, which has essentially year-round twice-a-week watering restrictions, Austinites will pay a "water sustainability fee" for the first time next year (expected to total about $4.40 a year for the average meter), in addition to a projected 7.7 percent rate rise. Lubbock is raising its "base rate," a fee paid by everybody so that "we don't have near the swings of our revenue," said Aubrey Spear, the city's water utility director.

Many wholesale providers of water, which sell water to cities, already do this to an extent. Fred Werkenthin, an Austin-based attorney who specializes in water and environmental law, said that wholesale water suppliers that draw from  reservoirs mostly sell water on a "take or pay" basis, meaning that their customers buy a certain amount of space in the reservoir and pay for it no matter how much they end up using. The Lower Colorado River Authority, one such wholesale supplier, charges its customer cities a "reservation rate" to secure water regardless of how much they use, and then a "usage rate" that is double.

Editor's note: An earlier version incorrectly stated that San Antonio and San Marcos limit watering to twice a week, when in fact it's once a week. That has been fixed, with thanks to commenter texlaw.