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El Paso Water proposes 7% rate increase for next year [1]

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Date: 2024-12-04

City-owned El Paso Water on Tuesday proposed a rate increase for the upcoming year that would boost average household water and sewer bills in El Paso by $5.71 per month.

After reviewing the budget for 2025 this week, the seven-member Public Service Board that governs El Paso Water will decide in January whether to OK the rate hike, which would take effect March 1, 2025. If approved, it would cap a decade of consecutive annual rate increases that El Paso Water has secured in order to pay for an ongoing, multi-billion dollar renovation of the city’s water and sewer systems.

During the board meeting, none of the PSB members questioned the utility’s proposed budget for the upcoming year – a sign the group is unlikely to vote against the rate hike next month.

El Paso Water is “trying to balance what we think that we need, what the needs are, and the ability to afford what we charge – what the customer is actually paying,” said John Balliew, El Paso Water’s chief executive.

The bill hike EP Water unveiled this week would bring the average El Paso household’s monthly bill for water, sewer and flood control to $82.08. That doesn’t include other city charges that are tacked onto water bills, including an environmental fee of $5, a franchise fee of $6 and a charge for a gray curbside trash bin of $21 per month – which increased from $19 in September.

Monthly residential water bills in El Paso increased on average by $3.54 in 2024 and by $9 the previous year. Under the proposed rates, customers next year would be paying about $220 more for water and sewer service annually compared with average bills in 2022.

El Paso Water’s proposed budget for next year totals nearly $1.06 billion, which includes the utility’s three units: $956 million for water delivery and sewage – an increase from $889 million last year – and $101 million for the stormwater unit that manages flood control, a $2 million budget increase from last year.

The billion-dollar-plus budget for next year is more than double the budget of $504 million that El Paso Water adopted in 2021.

See Also ‘Use more, pay more’: El Paso Water looks to change rate structure, increase bills for big consumers Households that use a lot of water could see monthly bills rise by $10 under the proposed rate structure change. Minimal water users could get a break.

EP Water is updating much of the city’s water and sewer infrastructure. On average, pipes in the city’s water system are a half-century old, Balliew said.

A view of the Roberto Bustamante Wastewater Treatment plant, where sewage is aerating in tanks. (Danielle Prokop/El Paso Matters)

But the bigger driver for EP Water’s spending increase are new capital facilities the utility is building, such as the Advanced Water Purification Facility that will serve the Eastside with 10 million gallons of additional drinking water every day, as well as an expansion of the Bustamante sewage treatment plant in the Lower Valley.

The costs of both projects have ballooned amid economy-wide inflation in recent years; the AWP treatment facility has roughly doubled in cost to $300 million and will begin operating in 2027. EP Water still has to spend another $757 million to expand the Bustamante plant over the next five years.

The Bustamante plant, which treats Eastside sewage, began approaching its maximum capacity a few years ago amid growth in that part of town, so the Texas Commission on Environmental Quality required the utility to expand the facility to be able to treat 51 million gallons daily, an increase from 39 million gallons per day, currently.

Beyond the water and sewer budgets, EP Water proposed raising the stormwater fee on households’ monthly bills from $6.40 to $7.42. After El Paso Water in 2021 accelerated the pace of its stormwater improvement plan to be completed in 10 years instead of 20 years, the water utility has been spending around $70 million annually on flood control projects such as new drainage ponds, dams and basins.

For the upcoming year, EP Water proposed $66 million of spending on capital facilities to prevent flooding in the city.

EP Water also has to raise rates regularly to satisfy the bond rating agencies that grade how likely the utility will pay back debts, and they help determine the interest rate that EP Water has to pay on the debt it issues to fund day-to-day operations and projects.

S&P Global Ratings, one of two agencies that tracks EP Water, in May lowered its rating on some of EP Water’s debt down by one level to AA. That’s still a strong credit rating, and S&P analysts said EP Water’s outlook going forward is stable. But, even before the latest proposed rate hike, S&P warned that unaffordable rates could threaten the utility’s finances.

“The lowered rating reflects our view of the El Paso utility system’s weakened financial position, which is stressed by its increasing debt burden and pressured rate affordability, combined with the area’s above-average poverty rate,” John Schultz, a credit analyst with S&P Global Ratings, wrote in a May 20 note.

Higher interest rates are bad for EP Water. Based on the proposed budget for next year, the utility is expecting to spend $21 million extra on interest payments compared with the current fiscal year.

The Desert View neighborhood east of Loop 375 and south of Zaragoza Road continues to expand. (Ramon Bracamontes/El Paso Matters)

EP Water is also proposing to raise rates in part to fund projects that serve new growth – such as new retail businesses and housing developments on the city’s fringes.

Typically, developers building homes in high-growth areas of the Far Eastside, Northwest and Northeast pay impact fees of roughly $1,900 to $2,000 per home to EP Water to cover part of the cost of extending new water and sewer service lines out to newly-built homes. Projects that are underway to serve new growth include a new waterline in the Northwest, sewer main upgrades at Dyer Street and Railroad Drive, as well as a sewer and waterline extension near Montwood Drive.

But the impact fees have remained the same since they were adopted in 2009, and in reality only recover a small portion of the money EP Water actually pays for projects serving new growth. The rest of EP Water’s cost to extend service lines is spread among all EP Water customers, meaning ratepayers effectively subsidize new housing developments.

Related Judge strikes down city’s environmental services franchise fee A district court judge ruled in favor of former state Rep. Joe Pickett, saying the city’s environmental services franchise fee should be discontinued.

City Council earlier this year lifted impact fees by 28%, a miniscule increase compared with estimates from the utility’s consultants that suggested the impact fees home builders pay should be thousands of dollars higher per home. The higher impact fees in theory would disincentivize urban sprawl and lower the utility’s costs by making homes on the periphery of the city more expensive, and homes in the urban core – where there’s already water infrastructure – more attractive to buyers.

A majority of City Council representatives, however, didn’t want to face the risk of homebuilders leaving and the city losing out on additional property tax revenue from newly-built homes.

“We’re going to get, like, $2.5 million a year from the impact fees. But it’s taking us $126 million a year to provide for the growth of the system,” Balliew said. “That money has to come from the … customer bills.”

The median household income in El Paso in 2023 was just under $59,000, according to the U.S. Census Bureau’s most recent estimate. At the proposed rates that would raise household water and sewer bills to $82.08 on average, or about $985 annually, water costs would account for 1.67% of the median household income in El Paso. The Environmental Protection Agency generally considers water and sewer bills that exceed 2% of income as unaffordable for households – so, El Paso would still be below that threshold.

While the utility’s board hasn’t yet approved the proposed rate increase, the PSB on Tuesday did approve two measures to incentivize water conservation. The 15,000 customers in El Paso who use just 1 CCF of water – about 748 gallons – per month will see bills fall by around $10. And customers who use 4 CCFs or less will now see the $15 water supply replacement charge on their bills waived.

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[1] Url: https://elpasomatters.org/2024/12/04/el-paso-water-bills-proposed-rate-increase-2025/

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