El Paso Matters – El Paso Water mulls budget, rate increase options as key projects loom

El Paso Water this week previewed different budget plans and proposed rate increases for next year, with the preferred plan by the utility’s top executives raising typical household water bills by about $60 a year.

El Paso Water executives this year offered four rate options for the Public Service Board that governs the utility: no rate increase, a small increase of about 50 cents a month, a $5 monthly increase and a  $7 monthly hike. 

The typical household water bill in El Paso is currently about $91, including sewer, water, stormwater and extra city fees for trash and environmental services. The rate hikes under consideration would increase the typical water bill in El Paso to between $92 and $98. 

For years, El Paso Water executives offered a single budget and rate increase recommendation that the seven-member board typically adopted with few, if any, modifications. But this year, Public Service Board members sought more budget options and wanted to explore what would happen if El Paso Water rejected an annual rate increase for the first time in more than a decade. 

“Not only is the board considering, within these options, a reduction to the number of large projects that we do to replace aging pipes, to construct new water treatment facilities, but they’re also considering effects to staff,” Gilbert Trejo, El Paso Water’s chief engineer, said in an interview with El Paso Matters. “Some of the budgets that they saw would show major workforce reductions for El Paso Water.”

The budget options El Paso Water’s board will consider over the next three months raise questions of timing: Should the city-owned utility hold off on projects and construction spending in the near future to avoid or minimize a rate increase on customers? Or should the utility spend big on projects quickly to avoid water disruptions and flooding? Or would a plan somewhere in the middle work best?   

“Our customers expect from us to be affordable, but they also expect from us to have high-quality water services as well,” Trejo said. “Each one of these different options has a different range of effects to the customers.” 

The consistent rate increases El Paso Water has implemented annually for more than a decade are a result of a multi-year, multi-billion dollar construction cycle. The utility is spending record sums on projects such as a new drinking water treatment plant in the Lower Valley, expanding the city’s largest sewage plant and replacing infrastructure, including half-century-old water pipes. 

The larger rate increase under consideration “would actually be in response to what a lot of our customers asked from us in January, when we experienced the Northeast water line break,” Trejo said. “We’ve been asked to accelerate and do more large diameter pipeline replacement. So, there is an option that actually accelerates projects and puts more projects into the budget. But that will result in a larger rate increase.” 

Over the past fiscal year, El Paso Water spent a record $831 million on capital improvements – physical projects such as the Pure Water Center treatment plant in the Lower Valley. For perspective, from 2018 through 2022, the utility spent on average $168 million annually on water, sewer and flood-control projects.

Most of that spending is driven by the ongoing rehabilitation and expansion of the Bustamante Wastewater Treatment Plant in the Lower Valley that’s estimated to cost $1.2 billion.  

Other big-ticket items include the Pure Water Center that the utility broke ground on last year. The plant will treat wastewater from the nearby Bustamante facility to drinkable standards and re-insert as much as 10 million gallons per day back into the city’s water supply. The utility on an average day supplies about 108 million gallons to customers. 

El Paso Water is also poised to expand the Kay Bailey Hutchison Desalination Plant to increase production capacity to 33.5 million gallons daily from 27 million currently. 

Under the middle-ground option, the utility is proposing an overall budget of $1.3 billion for the upcoming year, compared with $1.2 billion for the current fiscal year. Capital spending would rise again next year to $888 million under that budget. 

Adopting a smaller budget and holding off on completing water projects also has a cost in the form of inflation, Trejo said. 

The Pure Water Center’s total construction cost is about $330 million, an increase from a total expected cost of $300 million a year ago. Likewise, the utility originally expected to spend $8.5 million to expand the city’s desalination plant. The total cost is now expected to approach $18 million, according to El Paso Water. 

Trejo said the larger budget option – with a $7 a month rate increase – would bring in more revenue and allow the utility to work through projects more quickly to avoid cost increases over time. 

Still, he said there are limits to the number of projects El Paso Water can take on even with more cash in hand; the utility doesn’t want to rip up numerous highly trafficked streets to replace piping and disrupt drivers across the city. That’s why staffers prefer the more “balanced” $5 rate increase, Trejo said. 

“Although, ideally, you would want to do as many projects as possible at the current price to do them right now, it’s impractical to do that,” Trejo said. 

While the utility presented an option to not increase rates, the utility’s governing board agreed that is not under consideration. In order to avoid a rate increase, Trejo told the PSB the utility would have to cancel the Pure Water Center project or halt much of the utility’s water and sewer-related construction work across the city. 

“The insanity of what that would do to our community is why we’re not going to vote for it,” PSB member Lane Gaddy said during the board meeting. “I trust the public not to be that naive about what that would do.” 

If the PSB approves the middle-ground budget option preferred by the utility’s staffers, the typical household water bill would include a $51.49 charge for water and sewer service, plus a $7.57 stormwater fee to fund flood prevention projects. The current typical stormwater fee is $7.42, although the fee varies based on the size of a customers’ property and the amount of impermeable concrete surface that covers the property. 

After strong rainfall in recent weeks caused flooding in portions of El Paso, one board member suggested El Paso Water prioritize spending on flood-control projects above sewer or drinking water-related work. 

“When stormwater fails, it’s often the ratepayer that absorbs the cost of the damage,” PSB member Stefanie Block said. 

“It’s their home that gets flooded,” she said. “We need some options in terms of stormwater, trying to be more aggressive. I think that’s an area where the community will absolutely understand that it’s in their interest.” 

Despite the big spending increase, EP Water is still considered in good financial health; Fitch Ratings in March gave El Paso Water the rating agency’s second-highest credit rating. 

But the construction boom is also becoming more expensive to finance. Fitch said the utility expects to fund roughly three-quarters of its $3.3 billion five-year spending plan with debt. Analysts with S&P Global Ratings, a different credit rating agency, warned in a March note that El Paso Water “will require rate increases to support the additional debt needs.” 

Meanwhile, the utility is facing escalating interest as it plans to take on more debt, according to Jeff Tepsick, the utility chief financial officer.

“Interest rates are rising. I think last year, when we did our bond issue, we were about a 4.3%. Next year, when we take out, we’ll probably be at a 5.25%,” he said. “So, those are some of the pressures that we have to deal with.” 

Still, water and sewer costs in El Paso are still generally affordable, said John Balliew, El Paso Water’s chief executive. The utility concluded that water bills in the city are in line with other Southwestern cities, and bills equal less than 1.1% of the typical household income in El Paso, Balliew said.  

“By any metric that we use, the typical El Pasoan is paying less than $50 a month for their water and wastewater services,” Balliew said. “By anyone’s measure, still very affordable.”

Those figures don’t include other city charges that are tacked onto water bills, including a franchise fee of $6, an environmental fee of $6.50 and a charge for a gray curbside trash bin of $22, plus sales tax. The city last month increased the monthly trash bin fee by 50 cents. Two years ago, the city trash bin fee was $19 per month. 

The city plans to increase the trash bin fee two more times in the upcoming years.

The PSB will take a final vote on the utility’s budget and proposed rate increase on Jan. 13. In the meantime, El Paso Water will host nine citywide community meetings about the budget between Oct. 13-22, as well as a second budget-focused board meeting on Nov. 4.

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