The Woodlands Water Agency, the managing body for the 11 municipal utility districts in The Woodlands, has sent a clear message: The Woodlands residents should not have to pay for the legal fees and uncollected revenue of other entities.

At its May 13 meeting, the board voted to direct its Woodlands Groundwater Reduction Plan representative to vote to not pay for anticipated increased San Jacinto River Authority surface water rates related to legal fees or budget shortfalls due to other entities not paying their share.

Prior to the vote, SJRA’s Deputy General Manager Ron Kelling outlined four potential rate scenarios based on the outcomes of legal scenarios. Depending on how lawsuits pan out, rates could increase next fiscal year by between 0.4% to 14.5%. The rates will be set May 26 by the SJRA GRP committee and approved, along with the fiscal year 2020-21 budget, by the SJRA board June 22.

A significant portion of the rate increase hinges on the city of Conroe. In 2016, the cities of Conroe and Magnolia refused to pay for the increased rates, deeming them an unfair burden to residents. According to the SJRA, these cities owe a total of $4.78 million and $252,397, respectively, as of March 31.

Quadvest, a private utility company, has also sued the SJRA on the grounds the entity is monopolizing surface water resources in the area and has set costly and unjust rates. Quadvest has filed for a temporary injunction from having to pay GRP fees while its lawsuits are going on, Kelling said.

When entities do not pay the current GRP rates, the cost burden falls on other GRP participants, SJRA officials said. SJRA officials said they anticipate expenses to increase as they have spent $1.5 million on legal fees within its GRP division thus far and anticipate an additional $2.5 million by the end of FY 2020-21.

But officials with the Woodlands Water Agency said they cannot support passing these costs onto residents.

“The 3.7% [increase], ... we’d just look our community in the eye and say that’s fair and reasonable,” WWA President Eric Heard said, referring to the second rate scenario SJRA outlined. “I will say though, Scenario C, where we ask our residents to pay 14.5% increase, probably not truly workable for a number of reasons. And really more than anything it reflects a breakdown from what we bargained for in the agreement.”

Board members agreed the rate increases should reflect operating expenses, not legal fees and costs associated with entities not paying up-to-date rates.

“SJRA has to find another way to pay for these lawsuits,” trustee Arthur Bredehoft said. “Quadvest is not our issue, and the suit with Conroe and Magnolia is not our issue as we are meeting our contractual obligation. And why should the residents of the Woodlands pay for lawsuits and nonpayment by two parties in the contract?”

Kelling said he had anticipated the 14.5% rate increase scenario was unrealistic, which is why he had come up with a fourth scenario, which involves reducing production at the surface water plant.

“I still think your Scenario D at 8.5% is still not workable,” Heard said. “That is basically a 10% increase, and that is because other participants aren’t paying. I think you’re just going to have to find the money somewhere else.”

Kelling said the only option the SJRA would have is to draw from its debt service reserve, which currently holds $34 million. The SJRA is required to have at least a year's worth of debt service payments in its debt service reserves.

“The GRP is its own separate enterprise, so the only money that the SJRA GRP has to take is what is sitting in the GRP,” Kelling said. “When you’re saying find some other place to take the legal fee, if it isn’t coming in from rates ... or reserves... there is no place to pull money from. If we’re not allowed to use the rates to pay for the legal fees or to pay for the uncollected revenue, the only place to pull it from would be the debt service reserve.”

The board unanimously voted to direct its GRP representative to vote to not pay for rate increases related to legal fees or uncollected revenue. Any other options of legal nature related to the contracts will need to be discussed in future closed sessions, officials said.