But not raising rates—while seemingly a win for residents footing increasing water bills—means entities will still need to pay for the costs in the future, officials said.
“This is not free money,” SJRA Deputy General Manager Ron Kelling said. "At some point in time in the near future, this money's going to have to be repaid."
The committee’s objective for the meeting was to direct the SJRA staff to prepare a budget according to the rate that was chosen. The GRP review committee will hear this budget at its June 15 meeting, and if approved, the rate then goes to the SJRA board of directors for approval June 22.
In mid-April, Kelling provided four rate scenarios to the SJRA board based on legal outcomes that could raise rates by up to 14.5%. The legal outcomes largely hinge on the cities of Conroe and Magnolia, which have refused to pay rising SJRA fees since 2016 on the grounds that they have placed an exorbitant burden on residents; the resulting shortfall from these entities not paying full rates; and lawsuits filed by Quadvest, a private utility company, against the SJRA.
By August, the cities of Conroe and Magnolia would have a total $4.7 million shortfall, according to the SJRA.
When Kelling presented these rate options May 13 to The Woodlands Water Agency, the managing body for the 11 municipal utility districts in The Woodlands, the board said it would not be supportive of continuing to pay for rate increases based on legal fees or other entities not paying their share.
“Their request was ‘Go find somewhere else to pull that money from,” Kelling said. “As we indicated to them, there is no other place to pull from.”
Following the WWA meeting, Kelling said he went back to the drawing board and May 26 presented the GRP review committee with two additional rate increase scenarios: Scenario K and Scenario L.
In Scenario K, requested by the WWA, the rates for next fiscal year would stay the same. The rates would cover only the operations and maintenance cost for the surface water plant and transmission system and GRP debt service. The rates would not be based on legal costs associated with lawsuits nor the uncollected revenue from Conroe and Magnolia.
The legal costs—which would total $1.76 million—would be included in the budget but not included in the rate.
In Scenario L, the rates would cover all costs, including legal costs, except for the uncollected revenue from Conroe and Magnolia. The rates would increase by 3.3% over FY 2019-20.
In both scenarios, the SJRA would need to draw from its debt service reserve to pay for its legal fees and shortcomings from Conroe and Magnolia, Kelling said. Drawing from this reserve could have stipulations that may be required by the Texas Water Development Board and bondholders, and this money must be replenished in future years, according to the SJRA.
“Once you start pulling money from the debt services reserve, then that ends up being a whole other set of reporting you need to do,” he said.
Kelling said they could theoretically keep drawing from this reserve for up to nine years, and it would need to be replenished by funds awarded by the court required of Conroe and Magnolia and any remaining revenue generated from rates.
After about 30 minutes of discussion, the committee ultimately voted on Scenario K.
The committee also rejected a proposal by the city of Conroe for the SJRA GRP Division to conduct an independent study regarding the fees, rates and charges adopted for FY 2020-21.