Richardson—along with the cities of Mesquite, Plano and Garland—mounted a challenge to the structure of the contract in late 2016. The state’s Public Utility Commission has been reviewing the cities’ request.
The possibility of a settlement takes on new significance given the continued growth of water and sewer costs as the city’s largest spending category. For many cities, public safety is the largest spending category because of the personnel and equipment required.
In Richardson, water and sewer expenditures have risen by about 36% in the last five years to $85.5 million. For comparison, the city budgeted $55.5 million for public safety in fiscal year 2019-20.
“For as long as I can remember, water and sewer expenditures have been bigger than public safety. But they have grown in recent years as wholesale costs have increased,” said Keith Dagen, director of Richardson’s finance department.
The water district supports the settlement efforts, provided the district can still cover the costs of maintaining the water system and expanding it to meet the growing regional demand for water, a spokesperson said.
“Those costs must be funded regardless of the amount of water consumed each year, which fluctuates based on weather patterns and other factors, such as growth,” NTMWD spokesperson Janet Rummel said.
The water district’s service scope expands far beyond its 13 member cities, Rummel said. Nearly 80 communities with a combined population of 1.7 million are served by NTMWD on a daily basis.
The city of Richardson has asked the Public Utility Commission of Texas to delay its consideration of the case until Dec. 13 as the parties work toward a settlement.
In the meantime, Richardson residents will continue to pay more for water even as they use less.
LESS WATER, HIGHER BILLS
Between 2010 and 2018, Richardson’s population increased by about 24% while total residential water usage declined by roughly 12%, according to city and U.S. Census Bureau records. However, water and sewer costs continued to rise because of the water district’s “take-or-pay” contract.
Under the agreement, which has been in place since 1988, cities pay for the amount of water that was used in their single year of highest usage, not how much their residents and businesses actually use each year.
Richardson’s year of highest usage was FY 2000-01, during which total water consumption was reported at roughly 11 billion gallons. In FY 2018-19, water consumption totaled 7.8 billion gallons.
The district raises water and sewer rates primarily to pay for capital investments, Rummel said.
But because Richardson’s water costs stay the same regardless of how much water it uses, the city ends up passing the water district’s rate increases on to consumers.
Richardson’s rate has increased each year since FY 2010-11, city documents show. This year, the city implemented a 7.5% rate increase, resulting in an additional $7.90 tacked on to the average residential monthly bill.
The city says rate increases are inevitable under the current system because of the infrastructure needed to support the region’s growth.
TILTING SCALES
The impact of the take-or-pay system is not universally negative. For fast-growing cities, the arrangement is more favorable.
While a more mature city, such as Richardson, may not currently use its full share of water, the debt on infrastructure built to support its population during periods of rapid growth must still be paid, said former Frisco Mayor Maher Maso.
“I don’t take exception to Richardson or Plano saying they pay for water they don’t use—that’s accurate,” he said. “The question really is, ‘How much is their fair share of funding the organization?’”
Now that the scales have tilted in the opposite direction, Richardson no longer agrees with the deal, Maso claimed.
“It’s unfair to ask the cities that didn’t use that infrastructure to pay for part of it,” he said.
Newer cities have the luxury of learning from more mature cities and making adjustments to their own practices. They also are maturing during a time when water conservation is part of society’s collective consciousness, he said.
“If [the system] works like it should, [a city’s] peak should not be more than they’re actually using because they’ve learned and figured out that they need to conserve today while they’re still growing,” Maso said.
But the take-or-pay system does not incentivize water conservation for more developed cities. Older cities have to make sure they sell enough water to pay down their debts, he added.
“It’s really a tough situation, and it’s harmful for the region if we don’t all get on the same page,” he said.
Maso said he is confident there is a potential for compromise under the current system so long as all parties involved are willing to work with each other.
“I think everybody needs to sit down for the region and see if, over a period of time, there are ways to make some adjustments,” he said.
GROWING DEMAND
Water rates are expected to continue to climb, although not by as much as in recent years.
In the coming year, affected cities will pay 2.4% more per 1,000 gallons of water than they did the year before. This is the lowest rate increase the water district has asked for since 2006, Rummel said.
But a quickly growing Collin County population is expected to require more water sources and infrastructure.
The district’s openness to a change in the cost-sharing structure does not necessarily mean it can afford to take in fewer dollars overall, Rummel said.
“The district is open to a contract change as long as adequate funding is available to cover the costs to maintain, operate and expand the regional system the cities share and to cover any debt costs,” Rummel said.
