Faced with higher costs for electricity, chemicals and fuel, the McAllen utility plans to discuss a major rate increase next month.
The Public Utilities Commission plans to discuss proposed water and sewer rate increases at budget workshops in August.
While the council is still reluctant to raise rates, the utility simply cannot absorb higher costs without passing some of the pain on to customers.
“Our biggest concern is for low-income people,” said board chairman Charles Amos, who added that rate increases still hit low-income and fixed-income customers the hardest. “They’re already being hit hard enough by fuel prices, grocery prices – everything else.”
Chief executive Mark Vega said council could consider proposals to raise the base water rate from $9.95 per month to $13.95 or $14.95 per month. The base sewer rate, meanwhile, could drop from $12 per month to $12.50 or $13 per month.
All customers pay base rates, regardless of how much water they use.
Council may also consider a proposal to increase the price of water by 10 cents per 1,000 gallons.
Even after the increases, McAllen’s water and sewer rates would remain competitive with other cities in Texas and the Rio Grande Valley.
“There’s never a good time to raise rates,” Vega said. “But we do it because it is necessary.”
AEP Texas and the Magic Valley Electric Cooperative, which supply electricity to the utility, plan to raise prices.
“Both of them told us: expect a rate increase,” Vega said.
The cost of the chemicals McAllen uses to treat drinking water has tripled in the past 12 to 18 months, Vega said. Fuel is also much more expensive.
“Fuel for our entire fleet doubled last year,” Vega said.
McAllen isn’t the only city where the cost of electricity, chemicals and fuel is skyrocketing.
“It’s across the board,” said Jeff Snowden, owner of Frisco-based Capex Consulting Group, which advises utilities throughout Texas.
Many utility systems increase their rates to cover higher costs.
“They’re under a lot of pressure,” Snowden said. “And it’s not just public services. I also work for the general government, and they are really struggling.
Studies prepared by Capex Consulting Group consistently show that McAllen charges some of the lowest water and sewer rates in the Valley. In a study Snowden prepared for the town of La Joya last month, only Edinburgh ranked lower for residential customers.
Along with higher prices, the utility also faces falling revenues.
“The biggest impact we’ve had is not an expense at all,” Vega said. “It’s just the fact that people are using less water.”
When customers use less water, the utility receives less revenue.
“I think inflation has really hit the average person in such a way that those who usually water their lawn with a sprinkler system are just choosing not to,” Vega said. “They choose to wait for the rain.”
The utility, however, still has to maintain the water and sewer system. It is also locked into take-or-pay contracts with irrigation districts, which obligate the utility to pay for a certain amount of water each year, regardless of how much the utility actually uses.
“Other communities can easily reduce their consumption,” Vega said, by simply buying less water if customers use less of it. “We don’t. We can not.
McAllen is always looking for other ways to generate revenue, Vega said, which allows the utility to provide low-cost services to residents.
“We treat Alton’s wastewater. We sell water in Hidalgo. We sell water in Edinburgh. We sell recycled water,” Vega said. “We are always looking for new sources of revenue to meet these increases in expenses. And that way we don’t have to raise the rates or we don’t have to raise them as much.
Administrator Ric Godinez said the board would look for ways to cut costs before considering a rate increase.
“Times are tight for everyone,” Godinez said. “We don’t want to contribute to that pain, the financial pain, if we can avoid it.”