Contracts with suppliers drive up costs for city's utility customers
This summer, communities throughout Texas are implementing strict contingency plans to help conserve water during what could be the worst drought on record. Residents in Hutto, however, will not have to worry much about restricting water use.
The city receives, on average, about 1 million more gallons of water daily than its residents use because of binding water purchase agreements. This year, Hutto's population has used an average of approximately 1.2 million gallons per day, but the city receives approximately 2.275 million gallons per day through its water contracts. While the city does have contingency drought plans, it has not implemented them, as its water supply is more than enough to meet peak summer demand.
Although the cushion in supply is keeping residents and businesses from cutting back during the drought, it is also driving up utility rates. Hutto bills at a rate of $54.90 for every 5,000 gallons of water used, a rate that is exceeded locally only by Leander, which has a rate of $61.90 for every 5,000 gallons. The city of Round Rock's rate, at $25.59 per 5,000 gallons, is less than half that of Hutto's.
"When you look at [the city's] costs [to purchase water] ... per thousand gallons, it's very much in line with anybody else," Hutto Assistant City Manager Micah Grau said. "It's just the volume of water that's pushing our costs."
Hutto receives its water from Heart of Texas Water Suppliers, which provides 1.6 million gallons per day; Manville Water Supply Corp., which supplies 500,000 gallons per day; and the city of Taylor, which provides 175,000–300,000 gallons per day. For the water it receives, the city pays $2.57 per thousand gallons to Heart of Texas, $3.50 per thousand gallons to Manville and $2.04 per thousand gallons to Taylor.
Why so much water?
The city entered into contracts with its suppliers in the early 2000s when its population was growing by 40 percent to 80 percent per year. Hutto's leaders signed water contracts they believed would sustain the predicted influx in population and development. However, when growth stalled in 2008 and 2009, residents were left to pick up the extra costs of the water no one was using, Grau said.
"When those growth assumptions weren't there, and we had already built the infrastructure, ratepayers then had to subsidize those costs," Grau said.
Regardless of need, the city is contracted to pay for a set amount of water per day from its suppliers. Hutto renegotiated its contract with Heart of Texas in 2006, lowering yearly costs with the company from more than $3.8 million to approximately $1.6 million, but the city is still obligated to receive 1.6 million gallons per day from Heart of Texas until 2015, when the amount is set to increase to 2 million. In 2017, the city is expected to receive more than 3 million gallons per day from providers, more than double its current total consumption.
Even if the city does not grow into the water supply it has available, it will be hard to renegotiate how much it receives. Hutto has contracts with Heart of Texas through 2054, Manville through 2043 and the city of Taylor through 2042.
"Negotiation requires both parties to agree," Grau said. "[Our suppliers] have things they need to protect, and they're selling water to us at a profit, so there has to be a reason for them to come to the table and sit down with us."
The renegotiations could alter how much water the city needs to provide to its residents during the day and allow further renegotiations with suppliers and the option of selling additional, unneeded water.
In the past, the city has worked with the Texas Commission on Environmental Quality to lessen the amount of water it needs to meet state standards, known as the alternative minimum capacity.
While the TCEQ requires 0.6 gallons per minute for every connection a water provider serves, Hutto was able to negotiate the rate to 0.54 gallons per minute. However, the city still has to be ready to serve at the 0.6-gallon rate.
"We were able to lower [the rate], which reduces our water supply, and we are working on [negotiating with TCEQ] again," Hutto Public Works Director Scot Stromness said.
Lightening the load
In addition to renegotiating contracts, the city is looking at other options to lighten the rate burden on residents. One option could be selling its excess water to another city or organization. The city may even accelerate the rate that it receives water from Heart of Texas to facilitate selling its extra supply.
"I think in these drought conditions, it would be a mutually beneficial thing [to sell extra water]," Heart of Texas Manager Tim Throckmorton said. "Like any business arrangement, you're selling a product, and the more product you sell, the better you do."
Hutto's infrastructure for providing water service, including a 26-mile transmission line built by Heart of Texas in 2006, is still relatively new, which reduces the probability of line breaks and system problems. In the long run, the city's water infrastructure could save money on line equipment and repairs.
"We've had a lot of infrastructure costs that as an older community you've [usually] kind of paid off some of those things, but we're still paying for those things," Grau said. "We're in a fortunate position right now that we have very new infrastructure, so we don't have a lot of the [breaks]. That's why our operations and maintenance costs are so low, because our infrastructure is so new."
Advantages to supply
Despite the difficulties the city and ratepayers face with water utilities, there have been some advantages of the abundant water supply.
Besides being shielded from drought restrictions, Hutto residents are also in little danger of losing water if one supplier's system breaks down; with its three sources, the city will likely never go without water. Hutto will also be able to facilitate its current upswing in residential growth.
"This puts us in a position of not having to raise up the red flags and say everyone has to stop using water," Stromness said. "I think that's one of our benefits to having redundancy, so to speak, instead of just getting water from one source, and when something happens to that one source, everybody's in trouble."