Utility Rates and Municipal Revenue Insights

Local Government Seminar January 31, 2019 Utility Rates Scott Bounds, Attorney

SOURCES OF MUNICIPAL REVENUE UTILITY RATES USER FEES TAXES FINES

Utility Rates Water Sewer Garbage Electric Gas

User Fees Alarm fees Building permits Building use Food/health permits Garbage service Participation programs (e.g., parks)

Water Bill May include other services But water fee should not include mandatory fees for voluntary fire fighting [Tex.AttyGen.Op. - GA-84-2003]

Ratemaking by Comparison City Baytown Oak Ridge North Conroe Huntsville Tomball Sugar Land Deer Park Pearland Willis Pasadena Friendswood Panorama Village Humble Shenandoah Water Rate $65.53 44.89 29.92 46.82 39.40 36.83 46.26 45.10 33.85 35.75 35.80 33.83 28.03 30.85 Sewer Rate $61.39 39.85 47.42 51.96 38.31 41.40 48.90 49.20 33.85 36.75 36.00 37.40 36.28 23.00

Profit Utility fees must bear some relation to the actual cost of providing the utility service. Courts have long recognized that a city may make a reasonable profit from the operation of its utility system. (Tex. Atty. Gen Op. JM-338 (1985)

Use of Profit A city may transfer the reasonable profit to the city s general fund. Utility fees must comply with the provisions of any debt instrument that is paid by the utility proceeds (i.e., bond covenants).

Consumer Classification A city may classify consumers into reasonable groups based upon such factors as: the cost of service; the purpose for which the service or the product is received; the quantity or the amount received;

Other Classification Factors the different character of service furnished; the times of its use; or any other matter that presents a substantial difference as a ground of distinction.

Arbitrariness A lack of uniformity in the rate charged is not unlawful discrimination: The establishment of classifications and charging different rates for the several classes is not unreasonable and does not violate the requirements of equality and uniformity.

Fair and Reasonable FAIR: draw an unfair line or strike an unfair balance between those in like circumstances having equal rights and privileges. Discrimination to be unlawful must REASONABLE: to rates charged does not vitiate unless it is arbitrary and without a reasonable fact basis or justification. Discrimination with respect

Water Rates Inside/Outside City The corporate limits of a municipality DO NOT furnish a reasonable basis for rate differentiation.

Water Wholesale/Retail Brushy District v. Texas Water Commission: the Legislature definitely gave rate-making power to the state agency .. Creek Municipal Utility clearly and

Water Rates Standard Texas Water Code Section 11.036, authorized entities having possession and control of state water to enter into water supply contracts subject to the price and terms of these contracts being just and reasonable and without discrimination and additionally subject to the same revision and control as provided . . . for other waterrates and charges .

Wastewater The rates, services, and the system of municipal wastewater subject to state regulation, largely through the Water Code, chapters 13, Water Rates and Services, 26, Water Quality Control, and 30, Regional Waste Disposal. Suffice it to say here, that a municipal sewer system requires state approval. services are

Municipal Owned Electrics Similar to the Water Code, the Public Utility Regulatory Act grants to the city council the exclusive original jurisdiction over all electric utility rates, operations, and services provided by an electric utility within its city or town limits. The Commission has exclusive original jurisdiction over electric rates not within the incorporated limits of a (city). The Public Utility Commission has no power or jurisdiction to regulate or supervise the rates of a municipally owned electric utility inside its corporate limits.

Appeals & Review A district court has original jurisdiction to determine the reasonableness of the City s utility fees.

Public Utilities Commission Town JUDICIAL REVIEW OF A PUC ORDER ABOUT WATER AND SEWER UTILITY RATES AND REFUNDS CUSTOMERS, CLAIMING FAILED TO CONSIDER THE EFFECT ITS DECISION HAS ON THE FINANCIAL INTEGRITY OF WOODLOCH'S WATER AND SEWER UTILITY, WHICH WOULD RENDER THE TOWN INSOLVENT. of Woodloch-TOWN SEEKS FOR THE ITS PUC

Collections of Municipal Utilities Texas Local Government Code Ch. 552 Deposits/No guarantees Limited Liens Limited Landlord/property owner responsibility

Due Process Required Utility service is a property RIGHT No termination without NOTICE Provide right of APPEAL Be FAIR

Rate Consultants Sufficient revenue Fairness of rates

Questions sbounds@olsonllp.com 713-533-3800