BY PAUL ROBBINS – SPECIAL TO THE AMERICAN-STATESMAN, Posted: 12:00 a.m. Saturday, April 12, 2014
Austin’s cost of living is soaring, and one reason is its water costs. Water rates are falling into a dangerous pattern. It’s called a “death spiral.” Costs go up, inducing market pressure to drive consumption down, eliminating revenue needed to pay fixed costs. So rates go up again, causing consumers to cut back further, and the spiral gets steeper.
At the same time, the Central Texas region is afflicted with record drought, so consumption is heavily discouraged. Water rates will go higher to make up for even more lost revenue.
Austin’s water utility boasts that its conservation efforts have lowered consumption 17 percent per person between 2006 and 2013. This seems impressive until you consider water rates went up 70 percent in the same time period. In fact, between 2000 and 2014, water rates went up 123 percent and wastewater rates went up 130 percent. Inflation only rose 36 percent.
And brace yourselves. It has been announced that by 2019, water rates will need to be increased another 31 percent and wastewater rates another 15 percent. This is despite cutbacks planned for next year’s budget and recent hook-up fee increases for new buildings of almost 200 percent.
The planned increases may not stop here. Due to the drought, the utility is shopping for new water supplies. To give you an idea of the relative cost, groundwater sold by one potential supplier to an Austin suburb is 30 times the price Austinites pay for Colorado River water.
Why are costs so high?
- The biggest reason is capital investment and debt, much of it coming from growth. About 52 percent of your water/wastewater bill is related to capital improvements. An example of this is the half-billion-dollar Water Treatment Plant No. 4, which began construction in 2010. Judging from the utility’s recent forecast, Austin will not need its capacity for 17 years. Because it is a wasted asset, it will literally cost more to turn on the plant than to leave off.
- There were poor decisions regarding asset management. The “profit” from the land sale of the former Green Water Treatment Plant site was put back into enhancements for the site’s redevelopment instead of lowering water costs. Other property, such as the retired Govalle plant on Lady Bird Lake, sits almost unused.
- The water utility is one of the largest energy users in Austin, consuming enough electricity to power 17,000 homes. Yet it has no energy conservation plan and is buying wind power at 39 percent more than it cost the electric utility to purchase.
- The utility’s profit, the transfer to the General Fund, has more than doubled since 2000, while water consumption is roughly the same.
Until the debt works its way out of water rates over time, Austin may not be able to do much to lower them. But through fiscal discipline and real conservation efforts, it can mitigate future increases.
There are a host of small cost-saving measures that can add up. These include: reducing General Fund transfers; postponing the operation of the new treatment plant until it is needed; buying and conserving electricity at an affordable cost; selling unneeded assets and using the profits to buy down debt; using leak-resistant polyethylene pipe; using “smart” utility meters to reduce labor costs and water loss.
There are several strategies that need to be implemented instead of purchasing new supplies. One of the most basic is to fully implement the water conservation plan approved by the City Council in 2007. This would be greatly enhanced if the conservation program was moved out of the debt-strapped utility, which has a conflict of interest saving water.
In addition, Austin has a reclaimed water system that is barely used, as well as access to Barton Springs flows into the Colorado River that might be routed to a treatment plant.
Austin would be foolish to ignore the affordability of its water any longer. Wall Street has a word for cities that have reached the height of fiscal hubris: Detroit.
Robbins is an environmental activist, consumer advocate, and author of “Hard to Swallow,” a report on Austin’s high water costs.