Faced with higher costs for electricity, chemicals and fuel, the McAllen Public Utility plans to discuss a major rate increase next month.
The Public Utility Board plans to discuss proposals to increase water and sewer rates during budget workshops in August.
While the board is always reluctant to increase rates, the utility simply can’t absorb higher costs without passing some of the pain along to customers.
“Our greatest concern is the low-income people,” said board Chairman Charles Amos, who added that rate increases always hit low- and fixed-income customers the hardest. “They’re already getting hammered pretty hard with fuel prices, grocery prices — everything else.”
General Manager Mark Vega said the board may review proposals to increase the water base rate from $9.95 per month to $13.95 or $14.95 per month. The sewer base rate, meanwhile, could increase from $12 per month to $12.50 or $13 per month.
All customers pay the base rates, regardless of how much water they use.
The board may also review 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 increase rates,” Vega said. “But we do it because it’s necessary.”
AEP Texas and the Magic Valley Electric Cooperative, which provide the utility with electricity, plan to increase prices.
“Both of them have told us: Expect a rate increase,” Vega said.
The cost of chemicals McAllen uses to treat drinking water tripled in the past 12 to 18 months, Vega said. Fuel is also significantly more expensive.
“Fuel for all of our fleet has doubled this 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, the owner of Frisco-based Capex Consulting Group, which advises utilities throughout Texas.
Many utility systems are increasing rates to cover higher costs.
“They’re under a lot of pressure,” Snowden said. “And it’s not just the utilities. I do general government work too, and they’re really having a hard time.”
Studies prepared by Capex Consulting Group consistently show McAllen charges some of the lowest water and sewer rates in the Valley. In a study Snowden prepared for the city of La Joya last month, only Edinburg ranked lower for residential customers.
Along with higher prices, the utility is also faced with falling revenue.
“The biggest impact that we’ve had, it’s 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 that inflation has really hit the average citizen in such a way that the ones that usually would water their lawn with an automatic sprinkler system are just choosing not to,” Vega said. “They’re choosing to wait for rain.”
The utility, however, must still maintain the water and sewer system. It’s also locked into take-or-pay contracts with irrigation districts, which require the utility to pay for a certain amount of water every year regardless of how much the utility actually uses.
“Other communities can easily cut back,” Vega said, by simply buying less water if customers use less. “We don’t. We can’t.”
McAllen is always searching for other ways to bring in revenue, Vega said, which allows the utility to provide low-cost services to residents.
“We treat wastewater from Alton. We sell water to Hidalgo. We sell water to Edinburg. We sell recycled water,” Vega said. “We’re always looking for new revenue sources to match those increases on the expenses. And that way we don’t have to increase rates or we don’t have to increase them as much.”
Trustee Ric Godinez said the board will search for ways to reduce costs before considering a rate increase.
“Times are tight for everybody,” Godinez said. “We don’t want to contribute to that pain, the financial pain, if we can avoid it.”