For the 10th year in a row, the North Texas Municipal Water District has increased water rates to its member cities.

The NTMWD, a nonprofit wholesale water provider, is increasing its rates almost 10.5 percent, or 24 cents per 1,000 gallons. The rate will increase from $2.29 per 1,000 gallons to $2.53 per 1,000 gallons for fiscal year 2016-17.

For the city of Plano, that equals an increase of $6.4 million owed to the NTMWD for the upcoming year. However, this year the city is not passing along any of the NTMWD increase to its residents.

City of Plano Budget Director Karen Rhodes-Whitley explained in a July 28 budget meeting that the city received unexpected increased water revenues when the water district lifted water restrictions in early summer last year.

“As soon as [the NTMWD] lifted [watering restrictions], in a three-month period [the city of Plano] collected $7.4 million over what we had originally thought we were going to collect,” Rhodes-Whitley said. “So therefore you have prefunded your increased cost to the district [for the upcoming year], which totals [$6.4] million.”

The city had projected receiving revenue for only 18 billion gallons of water for the past year. However, when the district lifted watering restrictions and residents were able to resume watering yards twice per week, that usage jumped to about 23 billion gallons of water used from July 2015 through July 2016, Rhodes-Whitley said.

The city of Plano joins the 12 other water district member cities—which are spread throughout portions of 10 North Texas counties—in finding ways to pay for the increasing cost of water.

According to NTMWD projections, rates are projected to increase 29 cents per 1,000 gallons again late next year and an additional 28 cents in FY 2018-19. Rates are projected to continue to increase until at least 2034, when the projected water rate is $4.26 per 1,000 gallons.

District challenges

NTMWD spokesperson Janet Rummel said there are three factors driving water rate increases: costs associated with rehabilitation and replacement of aging infrastructure, complying with strict state and federal regulation requirements and finding additional water supplies to support the district’s rapidly growing service area.

The population in the NTMWD’s service area in 2015 was 1.6 million. By 2040, the district is projecting a population of 2.5 million residents and by 2070, 3.7 million people.

Since 2006, the district has spent nearly $1.05 billion in supplementing existing supplies, complying with mandated regulations and working to develop additional water sources. Rummel said these projects are primarily the reason for increases to its wholesale water rate.

“Adequate funding through rates is required to cover increasing fixed costs and repay bonds for capital projects,” Rummel said. “From 1993 to 2001, NTMWD held water rates flat while the population in our communities grew by more than a quarter million people. With the continued significant growth projected, NTMWD could no longer wait to invest in new [water] supplies and infrastructure.”

Multiyear drought and regulatory challenges, such as a $125 million ozone disinfection project at the Wylie water treatment plants and a $300 million pipeline to circumvent infectious zebra mussels in Lake Texoma, drove rate increases, Rummel said.

In addition, the high population growth projection in the district—particularly in Collin County—requires the water district to work ahead now to supply water for the future, she said.

Rummel said the NTMWD is closely monitoring major developments in its service area, including Legacy West in Plano, the $5 Billion Mile in Frisco, Watters Creek in Allen and CityLine in Richardson. West McKinney, which is largely undeveloped, is also closely watched for its development potential, she said.

Since 2006, the district has been working on land acquisition and permitting for the Lower Bois d’Arc Creek Reservoir in Fannin County. The district has already spent more than $125 million, and the total cost of the project is projected at $1.2 billion. This water source is expected to supply the district’s water needs through 2040.

Covering a service area as large as the one NTMWD is responsible for, combined with the growing state of Texas, means a substantial amount of pipe to maintain and additional infrastructure to be installed, said Tommy Holmes, the legislative director for the American Water Works Association. The Colorado-based organization is the largest nonprofit, scientific and educational association dedicated to managing and treating water.

“Building a new reservoir—that’s a big deal. It’s difficult to get one built in the first place because there’s a lot of permitting involved,” Holmes said. “[The NTMWD is] to be saluted for looking forward and trying to anticipate future needs.”

Mounting costs

The NTMWD has been working since 2006 on a permitting process that will allow them to build the 16,526-acre Lower Bois d’Arc Creek Reservoir northeast of the Dallas-Fort Worth area.

Construction of the reservoir has been pushed back two years because of a fall 2015 delay in receiving a federal permit. Construction is now expected to start in 2018 with completion projected for 2022.

Construction costs on any water project, including the reservoir, trend higher every year, said Cesar Baptista, assistant deputy director of engineering for the NTMWD. He said the ENR Construction Cost Index, which is typically consulted by the construction industry, tends to increase by about 3 percent every year.

Baptista said increased construction costs are also caused by the same reason the district needs additional water supply—rapid growth in the North Texas area.

“Escalation of cost due to delays is a factor, but so is the current state of the economy,” he said. “Currently, there is a lot of [construction] work ongoing in the [Dallas-Fort Worth] Metroplex, which impacts material costs as well as labor resources.”

A national problem

According to a 2014 American Water Works Association study, water rates have been increasing steadily across the country for the past two decades.

The AWWA polled water utilities across the U.S. and found rates increased on average more than 12.3 percent from 2008-14.

“If a utility has been putting off rate increases or implementing very small ones, it likely has some catching up to do to keep its infrastructure sound and to comply with regulations,” Holmes said.

He said he thinks there are some “reality checks” taking place at many utilities across the country about the cost of providing water. In addition, many are working toward correcting water rates that have been too low.

He said the South and Southwest U.S., in particular, have struggled to keep up with water demands because of a growing population and drought. Increasing rates are also caused by the need to replace aging infrastructure.

“The nation’s infrastructure was built in cycles or in waves, and the water infrastructure that was laid down in the boom years after World War II is starting to show its age,” he said. “We need to start replacing it now because it’s going to get more expensive.”

Holmes said the AWWA has been campaigning for a decade to get policymakers and the public to better understand the need to reinvest in water infrastructure.

He said the AWWA knows there is a need for low-cost capital for utilities to be able to do large-scale projects, such as major infrastructure work or new water supplies.

The AWWA, along with other organizations, worked to get the Water Infrastructure Finance Innovation Act past Congress in 2014, Holmes said.

“I think in the coming years we are going to see lots of utilities striving toward full-cost pricing—the true cost [of water],” he said.

WIFIA will allow utilities or municipalities to apply for low-interest federal loans for drinking water, wastewater or stormwater projects. Projects that qualify for WIFIA funds must be at least $20 million, he said.

Holmes said the Environmental Protection Agency has spent the past two years putting together the program administration.

The EPA is developing application documents and the AWWA expects to see a formal application process unveiled soon, Holmes said.