Setting Expectations for Sewer Customers

The City’s new sewer system will initially be serving approximately 100 customers in the central Wimberley area – basically the area between Cypress Creek and the Blanco River, and down Old Kyle Road and RM 3237. Although it will not be completed until next year, I would like to address what the customers of the sewer should be expecting with regard to requirements to connect, costs to connect and monthly rates. Also, our other citizens may be interested since the City’s overall finances are affected.

Requirement to Connect. Under City Ordinances 2010-014 and 2018-11 passed by previous City Councils (which can be found on the City’s website under Wastewater Project), all properties with septic systems within the service area will be required to connect once the system is made available to them. An exception is made for properties with new septic systems since January 1, 2013 that allows deferral of connection for eight years from the date of the issuance of their septic permit. Connection to the City system must be done within 45 days once notified of availability. What happens if a property does not connect? Under the Ordinance, the City will provide notice of the requirement to connect within 30 days. If the property does not connect within that timeframe, then the City will connect the property to the system and will charge the cost to the property owner. What if the property owner does not pay? Per the Ordinance, the City may then place a lien on the property and institute suit against the owner to collect the costs. Why do all properties have to connect? This is a very costly multi-million dollar project and thus needs a large enough customer base to generate revenues to pay for it – plus it was a condition of the Texas Water Development Board (TWDB) loan to finance the project.

Cost to Connect. The property owner will have to bear the cost to connect to the system. This includes digging the trench, installing a service line on their property to the main City sewer line, and connecting it to the property’s plumbing system. It will also include decommissioning the septic tank. The process will be subject to City permits and inspections. The costs to do this will vary by property, depending on the distance, difficulty in digging (i.e. rock), and other issues. The City had planned to pay for such customer connection costs, but last year this assistance was removed from the scope of the project when the sewer system bids far exceeded the estimates, resulting in insufficient funds. In the alternative bids received by the City which were not accepted, the average cost per property ranged from $3,800 (low average bid) to $6,775 (high average bid) to install service lines and decommission septic tanks. Additionally, some properties at lower elevations will require a grinder pump at their expense, adding several thousands more.

Rates. This is a bit more complicated to explain. But first here is the big picture. The project is primarily financed with $5.3 million in Revenue Bonds from the TWDB. By design, the Revenue Bonds are intended to be repaid from revenues generated from sewer system customers (not by taxpayer funds). Thus, the amount of revenue needed must cover operating expenses and debt payments. As a condition of the loan, TWDB requires the City to “charge rates sufficient” to achieve these required revenues. In the City’s financial projections to the TWDB, it identified two customer bases – customers receiving sewer service and Blue Hole Park purchasing reclaimed water for irrigation. Again, big picture, this is a very expensive project with a small customer base that will be required to be charged “sufficient rates”. Rate determination is based on debt service requirements (which have already been fixed) and operating costs. How does the City ensure the lowest rates? The key element to this equation is the need to keep sewer system operating costs as low as possible.

Let’s look at the smaller, but important picture. What about a customer’s monthly bill? The City commissioned a rate study by Raftelis Financial Consultants last year that resulted in the establishment of preliminary customer rates that were incorporated into Ordinance 2017-017 (on website). A customer’s monthly bill will include three components. First is a “capital recovery fee” (sometimes called an impact fee), which entitles the customer to connect to the system. The amount of this fee is preliminarily estimated at $2,500 for approximately 90% of the properties, with a higher amount for larger users

(i.e. restaurants). The City plans to spread this cost over eight years in the customers’ monthly bills. Then there will also be a base rate and a volume rate. As the sewer comes on line, a new rate study will be performed to determine the first year’s actual rates. Because of expected revised lower volumes and higher operating cost and fewer customers, the new rates will likely be higher. And this is also contingent on how much revenue can be generated from Blue Hole as reclaimed water sales. Current projections include revenues from Blue Hole of $200,000 per year, approximately one half of the total revenue requirements. It has not been determined at this point how Blue Hole’s purchase of reclaimed water will be funded.

As a matter of an important disclosure to City sewer customers, the City will be responsible to determine and maintain “sufficient rates” to cover debt service and operating costs from year to year. Thus, such rates are purely at the discretion of current and future City Councils and subject to change at any time. Unfortunately, and unlike private and investor owned utilities which are subject to state regulatory processes, reviews and customer rights of appeal; municipalities are not subject to such regulatory oversight to its customers in the City – thus the customer has no protest rights.

I hope that this is informative to the new sewer customers in understanding what lies ahead for them. They will have a significant financial obligation in their requirement to connect – both in initial connection costs as well as ongoing monthly payments. As we move forward to constructing the collection system, the City will have additional communications to affected property owners and answer the many questions that will surely arise. Clearly, the City has an obligation to make sure everything is done to keep both construction and operating costs down to try to make monthly bills affordable to its customers while considering the overall financial position of the City and any subsidy that may be required.