Texas State senators hold hearing on water and sewer rates in rural and semi-rural areas

A panel of state senators will hold a public hearing today on soaring water and sewage rates in small communities around the state, including in Central Texas, as part of a probe into investor-owned utilities.

In eastern Travis County, residents have raised concerns for months about high water rates and plans for further water rate hikes. About 2,000 Texans have submitted protests against SouthWest Water Co. -owned Monarch Utilities I, L.P. 's proposed rate increase that goes into effect Monday in rural and semi-rural communities in at least 31 Texas counties, including Travis, Williamson and Hays.

The new base water rate for communities served by Monarch will be about eight times larger than the rate in Austin. The base wastewater rate will be more than five times the Austin rate.

The inquiry will explore investor-owned utilities, such as Monarch, as well as how rate increases are regulated by the state. The Texas Commission on Environmental Quality typically approves or disapproves rate changes long after they have gone into effect. There is currently no statutory cap or limitation on the amount a utility can request in its application for a proposed increase in its water or sewer rates.

The hearing of a joint subcommittee of members of the Senate Business and Commerce Committee and Natural Resources Committee will include testimony by officials from the environmental commission, State Office of Administrative Hearings , SouthWest and representatives of communities that would be affected by the rate increase.

"We need to be at the forefront to make sure there's not lax oversight," said state Sen. Kirk Watson, D-Austin, co-chair of the effort , adding that he is not criticizing regulatory agencies. "I see this as getting to the bottom of a very important issue. It's time for us to look at it."

"The law needs to be changed. We need to build protections into the Water Code for Texans. We can't allow this to continue," said Thomas Fritzinger , president of Austin's Colony Homeowners Association, Inc. The eastern Travis County subdivision is served by Monarch.

"We look forward to participating in what we believe will be a positive and constructive exchange of dialogue between the governing agency, the ratepayers and the industry," SouthWest spokeswoman Janice Hayes said.

California-based SouthWest is primarily owned by institutional investors, 90 percent of which are advised by J.P. Morgan Asset Management and 10 percent by Water Asset Management LLC.

Area subdivisions affected

Dozens of Central Texas subdivisions are affected by the proposed Monarch rate increases, including Forest Bluff and Hornsby Bend subdivisions in Travis County; Dove Hill Estates and River Oaks Ranch in Hays County; and Windermere and Forest Creek in Williamson County . Monarch customers affected by the rate increases live outside city limits.

For water service alone, customers of Hornsby Bend Utility Co. , a SouthWest-owned utility that will be consolidated into Monarch, now pay $36 a month.

Under the rate increase that goes into effect Monday , those customers will pay a minimum of $53.47 a month. Starting July 1, 2012, they will pay a minimum of $59.82 a month.

Wastewater rates would jump from $35 minimum a month to $46.59 on Aug. 1.

By contrast, Austin Water Utility charges as little as $7.10 a month as a water service tap fee and $8.95 a month for wastewater service.

Watson said he asked the state environmental commission to consider interim rates for customers who would be affected by the rate increases.

'Who can afford that?'

A June meeting held outside of the Austin's Colony Community Center drew a couple hundred concerned residents from the area. People complained about steep bills and poor water quality — cloudy and undrinkable, they said.

Some residents have moved out of their homes and communities because of the high bills. "And when they can't sell their homes, they rent and they leave," Fritzinger said.

Community leaders also have been looking into the possibility of forming their own incorporated city in part to provide additional safeguards against rate increases.

"There are some of us who can afford it for a while," Fritzinger said of the high bills, "but when your water bill is a quarter to a third of your mortgage payments, who can afford that?"

Rate increases have history

Residents' gripes are familiar. The American-Statesman first reported on unexplained water rate increases in Kennedy Ridge Estates , a low-income community in eastern Travis County that was rocked by soaring water bills a year ago. Kennedy Ridge is among the communities protesting Monarch's proposed increase, which would affect the Kennedy Ridge Water Supply Corp. on a different timetable .

The state recently reached agreements with the Kennedy Ridge Water Supply Corp. and its wholesale water and wastewater provider, SWWC Utilities Inc. , a subsidiary of SouthWest. Under its agreement with the state, SWWC agreed to credit Kennedy Ridge nearly $77,000 in restitution and to follow certain rules on increasing rates.

The agreements follow an investigation by the Texas attorney general, prompted by the American-Statesman report last year.

Bills that were once as high as $325 are now less than half that, a Kennedy Ridge leader said, but some residents this month saw bills that were more than $200.

In a lawsuit filed by the state on May 27, the attorney general alleged that SWWC, doing business as Hornsby Bend Utility, violated the Texas Deceptive Trade Practices Consumer Protection Act . It increased the rates to the Kennedy Ridge corporation, even though SWWC indicated in a news release and other "carefully crafted" communications that the increase would not affect the Kennedy Ridge community, the lawsuit states. Moreover, the lawsuit says, SWWC applied the increased rates retroactively for 12 months, leaving Kennedy Ridge owing more than $64,000 in back bills.

In addition to the $77,000 credited to Kennedy Ridge, the wholesaler paid $50,000 in attorney fees to the state as ordered, an attorney general spokesman said.

The agreement between the state and SWWC resolved the allegations made in the lawsuit. Hornsby Bend denies violating the law, a statement posted on SouthWest's website said.

By Suzannah Gonzales
AMERICAN-STATESMAN STAFF