Judges propose rollback in water rate case

A pair of administrative law judges appears to have dealt a major blow to the city of Austin in an ongoing water and wastewater rate case brought by a group of wholesale customers in 2013.

The judges, Pratibha Shenoy and Beth Bierman, filed a proposal for decision to the Texas Public Utility Commission on July 10 stating that the city “did not meet its burden of proof” under state law to “show that the water and wastewater rates it charges to Petitioners are just and reasonable.”

As a result, the judges recommended that the PUC roll the city’s water and wastewater rates for the customers in question back to 2012 levels and refund any amount collected over those levels since the city raised water rates in 2013 and wastewater rates in 2014. In addition, they said, the agency should bar the city from recovering expenses related to the rate case.

According to Austin Water Assistant Director David Anders, the city has incurred over $1 million in lost revenue associated with the case, along with legal fees.

The PUC will decide whether to confirm the recommendation on Aug. 14.

The customers involved with the rate case are North Austin Municipal Utility District No. 1, Northtown Municipal Utility District, Travis County Water Control and Improvement District No. 10 and Wells Branch Municipal Utility District.

The judges held a hearing on the case in February.

Cliff Drummond, president of the board of directors for Travis County Water District No. 10, responded to the news in a press release on Wednesday. “The recommendations should fundamentally change how Austin decides its water rates,” he said.

Drummond asserted that, as a result of developments in the case, “any future proposed rate increase by Austin must first be reviewed and approved by the PUC.”

Robin Campbell, president of the Northtown Municipal Utility District board of directors, also issued a statement on Wednesday. “The ruling demonstrates that the City of Austin failed to make a case supporting their general fund transfer policy and will establish that the City cannot tax residents outside of city limits through water rates,” he said.

AWU staff did not provide a statement in response to a request from the Austin Monitor on Wednesday.

In a memo sent to the mayor and City Council on June 30, however, AW Director Greg Meszaros outlined what the city planned to do upon release of the proposal. “Austin Water will consult with the Law Department and outside counsel to analyze what the effect would be if the proposed decision were to become a final binding PUC decision and what, if any, settlement options are advised,” he wrote.

Meszaros also wrote that the city engaged in settlement discussions and official settlement mediations in 2014 that did not yield an agreement.

The judges cited transfers from AW’s revenues to the city’s General Fund as an issue in their proposal.

“The City included in its cost of service a transfer of monies from the revenues collected through AWU’s water and wastewater rates into the City’s general fund of $17,722,306 and $16,802,030, respectively. The amount of the transfer is equal to 8.2% of the total revenues from all water and wastewater customers, including wholesale customers, based on a three-year average,” the judges wrote.

The parties used the city’s fiscal year 2013 as the test year in the case.

“The issue is whether the transfer into the general fund may be included in the revenue requirement used to set the rates for Petitioners,” the judges later argued. “Petitioners and Staff urge, and the (judges) agree, that the general fund transfer should not be included in the City’s revenue requirement used to set the rates for Petitioners.”

Meszaros wrote in his memo that AW plans to conduct cost-of-service studies for providing water to wholesale and retail out-of-city customers. “If recommended by the study, Austin Water will pursue updates to our cost-of-service allocation within its rate structure,” he wrote.