Residents in Montgomery County will continue to see rising water bills as cities fight with state water authorities over contracts and rates.

In response to resolutions passed by Magnolia and Conroe city councils, the San Jacinto River Authority filed an ex parte lawsuit—or immediate filing—in Travis County, including both cities, Aug. 31 citing breach of contract for the cities refusal to pay a recent increase in water usage fees.

The water rate increase that went into effect Sept. 1 only affects residents who receive water services from the 151 entities involved in the SJRA Groundwater Reduction Plan, including residents of Oak Ridge North and The Woodlands.

“This threatens to undermine the entire joint undertaking, and jeopardizes the ability of SJRA to repay its debt to the state of Texas and others, and may increase costs to the other  90-plus participants in the GRP,” said Ronda Trow, public relations manager for the SJRA. “Fortunately, the Texas legislature has put provisions into the law designed precisely to prevent this type of irresponsible action that puts at risk the state of Texas, the SJRA, and all the customers in the joint project.”

The SJRA’s plan uses water user fees to repay the cost of the $480 million surface water treatment plant on Lake Conroe and the pipeline system that delivers surface water to surrounding users—projects that were completed in late 2015.

Although the city of Magnolia does not receive surface water from the SJRA, it pays into the SJRA GRP to comply with conservation regulations put forth by the Lone Star Groundwater Conservation District, which serves to regulate the total consumption of groundwater.

Magnolia City Administrator Paul Mendes said the rising fees are a burden not only for residents with rising water bills, but for the city as well.

“The whole idea was they were going to [serve] Conroe and The Woodlands [with surface water] so we could pump all the groundwater we needed; the GRP was supposed to allow us to continue to pump our water without depleting the aquifers,” he said.

In addition to SJRA rates, residents also have to pay city water fees. For residents in the city limits, the city of Magnolia charges a separate flat rate of $21 a month for usage up to 1,000 gallons, with a $3.65 charge for each additional
1,000 gallons. Mendes said this money would normally go to maintain the city’s older pipelines and distribution systems, many of which are in need of repairs. 

Drop in demand

SJRA General Manager Jace Houston said the fees were increased as a last resort measure to address the drop in demand for water because of heavy rainfall over the last few years. From March through May, actual rainfall totals in Montgomery County doubled or tripled expected totals, based on SJRA projections.

Prior to the fee increases being approved, Houston said the fees were evaluated by a Customer Review Committee composed of representatives from local municipalities and utility providers.

“We can’t go another 12 months eating into reserves, and that is why the customer review committee finally said, ‘We have done everything we can, and we have to raise rates.’ Revenue went down but the costs don’t because we still have to pay debt. We have to operate the plant,” Houston said.

To close the deficit, the fees were increased at the beginning of September by 18 cents per 1,000 gallons—from $2.32 to $2.50 per 1,000 gallons of groundwater and from $2.51 to $2.69 per 1,000 gallons of surface water.

The fee is typically passed from utility providers directly to residents as a line item on their monthly water bills.

A household typically uses approximately 10,000 gallons a month, meaning SJRA fees combined with city fees—with an added $1.80 from the fee increase— would bring an average homeowner’s bill to just over $80 per month.

Houston said the fee increase was a last resort after the SJRA went through $6 million of its $13 million in reserves to avoid raising fees.

“Until [Aug. 31], in fact, we opted not to raise rates above what we had projected and instead decided to eat into our reserve funds,” Houston said. “We squeezed the budget, we delayed projects, and we delayed studies ... then when we got to the end, everyone on the committee recognized we have no choice.”

According to the SJRA’s proposed fiscal year 2016-17 budget, 100 percent of revenue comes from water sales, and 60 percent of revenue from water sales goes toward paying off the pipeline system.

Legal effects

Following the resolutions passed by Magnolia and Conroe, the SJRA considers the cities to be in breach of the contract they signed when they entered into the GRP in 2010.

Houston said the breach of contract triggers a specific set of steps for notifying the state, including informing the Texas Attorney General and the Texas Water Development Board as well as issuing a petition in court to confirm the validity of the GRP’s contracts and SJRA’s ability to enforce them.

“The whole concept is you can’t have a bunch of governmental entities join together, sign a contract and say they are going to build a large project to benefit everybody, then five years later have one of them say, ‘We disagree. We don’t think that was a good deal for us to enter into after all, so we are walking [away from] the contract,’” Houston said.

In August, the city of Magnolia hired Michael Powell, a lawyer from the Locke Lord law firm in Houston, to represent the city. Mendes said legal representatives from both sides of the suit are working to find an agreement for both parties.