North Texas Municipal Water District (NTMWD) Cost of Service Review


**UPDATE 11-3-20** Rowlett Files Objection to Motion to Dismiss with the PUC
On November 3, 2020 the City of Rowlett, along with the cities of Fate and Lucas (The Alliance), filed a motion with the Public Utilities Commission (PUC) objecting to a motion to dismiss proceedings filed last week by the North Texas Municipal Water District (NTMWD) and its 13 member cities to settle a dispute regarding wholesale water rates. The Alliance asserts that not all outstanding issues regarding the dispute have been resolved as The Alliance was not included in the settlement negotiations. The City of Rowlett intervened in the PUC proceedings to ensure that its residents will participate in benefits arising from revised wholesale water rate terms and not continue to pay rates that are defined by the PUC as “adverse to the public interest.” 

“While it is encouraging that the NTMWD and its member cities have come to an agreement on a very complex and lengthy issue, we are disheartened that our citizens have no guarantee of relief from high water rates,” said Mayor Tammy Dana-Bashian. “By filing this motion, Rowlett, as the NTMWD’s largest customer city, continues to vigorously advocate for our community.”

History

  • For many years, the NTMWD and its 13 member cities have been in a dispute over the methodology used to calculate minimum payments from each entity, referred to as “Take or Pay.” Under the Take or Pay contract provision, all member and customer cities purchasing wholesale water from the NTMWD are required to pay annually for the highest amount of water ever used. Rowlett is currently required to purchase a minimum of 3.2 billion gallons per year. As a result of the Take or Pay contract provision, in the past 19 years, Rowlett citizens have paid over $21 million to the NTMWD for over 11 billion gallons of water that was not received or used by Rowlett residents and businesses. 
  • The member cities of Plano, Garland, Mesquite and Richardson filed a petition with the PUC on December 14, 2016 to seek relief from the Take or Pay contract provision. 
  • In February 2020, the PUC agreed to initiate a cost-of-service hearing after concluding that NTMWD rates were adverse to the public interest.  
  • The Alliance filed a motion to intervene in the PUC proceedings on April 2, 2020. 
  • Instead of issuing the expected order for the cost-of-service review at their meeting on Friday, April 17, the PUC ordered the parties into mediation. 
  • On October 29, 2020, the NTMWD and its 13 member cities announced they had agreed to a settlement on the Take or Pay dispute and would file to dismiss the PUC petition. The Alliance was not included in the settlement negotiations. As a result, The Alliance filed today’s motion objecting to the motion to dismiss PUC proceedings. 

The North Texas Municipal Water District is a wholesale water provider serving more than 1.8 million people in nearly 90 communities across 10 North Texas counties. There are 13 member cities and over 30 customer cities and Special Utility Districts. A wholesale customer for 54 years, Rowlett is the largest customer city, with a population of over 66,000 residents and over 20,000 water accounts. Based on the current Take or Pay wholesale water pricing methodology in place, Rowlett will continue to be charged every year for hundreds of millions of unused gallons of water. Due to limited resources and the high cost of water infrastructure, communities such as Rowlett have no ability to mitigate the negative impact of the take-or-pay structure and there is no feasible option to transition to an alternate wholesale water provider. 


What is the North Texas Municipal Water District?
The North Texas Municipal Water District is a wholesale water provider serving more than 1.8 million people in nearly 90 communities across 10 North Texas counties. This water is purchased by the City of Rowlett and then passed on to Rowlett customers. There are 13 Member Cities and over 30 Customer Cities (including Rowlett), and Special Utility Districts. The City of Rowlett became a customer city of the NTMWD in July 1965. The current contract began May 1994 and is a 30-year agreement that expires in May 2024.


Who are the Water District’s Member Cities?
Allen, Farmersville, Forney, Frisco, Garland, McKinney, Mesquite, Plano, Princeton, Richardson, Rockwall, Royse City, and Wylie.


What is the difference between Member and Customer cities?
NTMWD Member cities are the only guarantors for the District’s debt and are responsible for a proportional share of the debt issued while they are a member. Member cities also appoint representatives to the Water District Board of Directors, while Customer entities have no board representation and therefore no voice on important matters such as the District’s budget, rate setting or on policy changes such as permanent water conservation.


What is Take-or-Pay?
Take-or-pay is the commonly used phrase for a NTMWD contract provision requiring a city to pay annually for the amount of water which is the greater of: a) its highest historic annual usage or b) its current annual usage. The intent of this contract provision is to ensure a guaranteed revenue stream to the district to provide financial stability. In effect, once a city establishes its highest historic annual usage, it continues to pay at that rate irrespective of lower usage in subsequent years. In other words, if the city does not “take” or use the water, it must still “pay” for that amount of water represented by its highest historic annual usage. For Rowlett, this amount is 3.2 billion gallons, which was set after the drought of 2006. Under the compulsory NTMWD take-or-pay structure, Rowlett has paid nearly $20 million for over 10 billion gallons of water that was not received or used by Rowlett citizens or customers. Rowlett understands the need for adequate rates and an appropriate rate structure to maintain this essential regional water commodity, but Rowlett residents are carrying an unjust burden of the cost of water for the area serviced by the NTMWD. Our citizens understand how unfair it is that they must pay more than residents of certain neighboring communities that currently benefit from this take-or-pay methodology.


What is the Public Utilities Commission?
The Public Utility Commission (PUC) of Texas is a state agency that regulates the state’s electric, telecommunication and water and sewer utilities, implements respective legislation, and offers customer assistance in resolving consumer complaints.


What are Rowlett’s concerns?
In the past 18-years, Rowlett has paid nearly $20 million for over 10 billion gallons of water that was not received or used by Rowlett citizens or customers. Based on the current take-or-pay wholesale water pricing methodology in place by the NTMWD, Rowlett will continue to be charged every year for hundreds of millions of gallons of water that we do not use. The high cost of water is the most common complaint we address with our citizens and it correlates directly with the NTMWD’s take-or-pay pricing structure. Due to limited resources, smaller communities such as Rowlett have no ability to mitigate the negative impact of the take-or-pay structure and we have no choice but to purchase water from the NTMWD as there is no feasible alternative. The take-or-pay rate methodology is fundamentally flawed. It does not ensure that users pay cost-based rates, as the rates never reset over the term of the contract to reflect the current actual usage of the NTMWD’s customer base.

In 2015, the NTMWD adopted a permanent water conservation policy that recommended their customer base implement an increasing-tiered retail water rate to spur even higher levels of water conservation. As a result, Rowlett achieved significant water conservation, even though the take-or-pay provision financially disincentivizes this approach. In fact, the take-or-pay rate methodology actually rewards overconsumption – the more you use the cheaper the water. Permanent water conservation, as a policy, put communities in direct conflict to sell the water needed to support their utility systems due to the take-or-pay provision. Of course, we believe conservation is needed, but we did not sign up for policies adopted unilaterally by the NTMWD that change the rules of the game without allowing water providers the ability to reset their projected water use under the new rules.

Although the take-or-pay rate methodology is the number one contributor to an unfair pricing structure, we have other areas of concern. Non-member customer entities such as Rowlett pay an additional 5 cents per thousand-gallon upcharge over member cities for the same water. This cost the 34 customer cities and special utility districts nearly one million dollars in fiscal year 2019. And, the NTMWD Board has discussed significantly increasing this upcharge for customer entities.

Customer entities have no representation on the NTMWD Board and, based on barriers in place, Rowlett has no ability to become a member city with representation. This customer group utilizes over 15% of the water the District produces, which is expected to increase to 25% by 2030, yet has no voice on important decisions such as the District’s budget, rate setting or on policy changes such as permanent water conservation.

Probably most disturbing is the requirement to have 100 percent agreement by the member cities to revise critical contract terms, such as take-or-pay pricing methodology, since some member cities are benefitting from the take-or-pay structure at the expense of other member and customer entities.


This is not just a “Rowlett” or “Customer City” issue!
Under the take-or-pay rate methodology, Rowlett has paid nearly $20 million for over 10 billion gallons of water that was not received or used by Rowlett citizens or customers. The NTMWD Member Cities of Garland, Mesquite, Plano and Richardson have also been severely impacted by this outdated pricing structure. In 2016, they filed the action with the PUC seeking water rate relief. Although these four cities are voting members, any change in the take-or-pay provision requires all 13 member cities to agree. The nature of any change would create winners and losers, meaning some cities would pay more than they currently pay while others would pay less. Since every city represents a different customer base, this is a sensitive issue. The critical legal argument raised by the member cities who filed this action is that the NTMWD rates are “against the public interest and inconsistent with conservation.”


What is the Customer Coalition?
An informal group of the 14 “non-member” customer cities of the NTMWD including Fairview, Fate, Josephine, Kaufman, Little Elm, Lucas, Melissa, Murphy, Parker, Prosper, Rowlett, Sachse, Sunnyvale, and Terrell. This group shares many of the same concerns with the unfair water rates and practices of the NTMWD.


Who represents the voice of the nearly two million customers served by the North Texas Municipal Water District?
The Public Utilities Commission, who initially agreed to initiate a cost-of-service hearing. A favorable outcome would include just and reasonable rates set for all of the wholesale customers of the district and a determination of the best mechanism to promote conservation while ensuring the district remains financially strong.


Why Request a PUC Cost of Service Review Now?
Over the years that Rowlett has been a customer city, the NTMWD’s budget and rates have grown exponentially with little to no regulatory oversight or checks and balances. Over the last 10 years, they have raised water rates by 239%. No independent regulatory authority has ever reviewed those rates, the NTMWD’s annual costs, or its cost structure across the customer base. It is time.


What’s Next?
Based on the request from the member cities, the PUC granted a 90-day extension to the requirement of a third-party mediator. If the parties cannot come to an agreement by then, the PUC could grant another extension or order/appoint a third-party mediator. Rowlett will closely monitor all actions and will intervene as necessary to represent our interests and will continue to vigorously advocate for our citizens.



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1. SB2 and the City Tax Rate
2. Sapphire Bay
3. Multi-Family Developments
4. Bayside Project History
5. Utility Bills
6. North Texas Municipal Water District (NTMWD)
7. North Texas Municipal Water District (NTMWD) Cost of Service Review
8. Economic Development
9. Streets and Alleys
10. Village of Rowlett Downtown
11. Liquor Stores
12. Senior Tax Freeze and Exemption
13. Parks
14. Scenic Point Park
15. Rowlett Community Centre
16. State Highway 66 Median Beautification Project
17. Rowlett Public Library
18. Rental Housing Standards Program
19. Housing Finance Corporation