PRIOR CITY COUNCIL ACTION:

City Council authorized funding for the Utility Rate Study in the City's Fiscal Year 25 Adopted Budget.

BACKGROUND:

The City solicited proposals by RFP in April 2025 and entered into contract with Willdan Financial Services in June 2025 for $39,420. 

During the FY26 budget process, the rate study was being performed by our consultant. Besides a 2% wastewater rate increase, City staff did not recommend utility rate increases pending the conclusion of the study.  This study shows additional rate increase for wastewater effective January 1, 2026, related to the anticipated growth in our system, forecasted cost increases from the Cibolo Creek Municipal Authority (CCMA) and the Canyon Regional Water Authority (CRWA), increases in city operating costs, and planned capital improvement projects (CIP) projects. The rate study covers the next 3 to 5 years. Annual rate increases are recommended in each year to fund these increased costs of service and growth in our system.

The biggest impacts on rates include:

• Increase in CRWA Operational Costs, Water Purchases, and Regional Water Participation Costs
• Increase in CCMA WWTP Operational Costs at WWTPs along with South Plant Expansion
• Debt issued for the Design ($3.825M in late 2025) and Construction (est. $33.75M with payments beginning in 2027) to expand CCMA South WWTP
• Debt required to fund CIP

The recommended rate increases will impact the average customer (7,500 gallons water consumption/5,000 gallons wastewater winter average) by 3.1%, 8.0%, and 5.0%, in January 2026, October 2026, and October 2027, respectively. 

This Utility Rate study does not include new capital improvement projects currently being evaluated in the 2025 impact fee study. The impact fee study will be presented in mid-2026 following the Capital Improvement Advisory Committee's (CIAC) involvement, study, and recommendation on the impact fees. In addition, this rate study does not include wastewater transmission projects that will serve the South Service Area Basin and flow to the CCMA South WWTP; the impact from these projects will be known after City Council provides direction on which project(s) to design and construct, developer contributions, debt issuance, and timing of construction. 

STAFF RECOMMENDATION:

Staff recommends moving forward with the rate recommendations made by our consultant by considering a change to our Fee Schedule Ordinance to be effective January 1st. These rate changes are necessary to cover the increased expenses of running a utility and ensures it has adequate revenue from customer accounts to cover costs from CRWA and CCMA, to perform necessary capital improvement projects, to make payments on the expansion to the CCMA South WWTP, and increased operational costs.  

FINANCIAL IMPACT:

Increase in revenues for water and wastewater to ensure the Utility Fund remains self-sufficient operating fund, including covering capital improvements to ensure a well maintained system and to expand for future growth/expansion of our utility system.

MOTION(S):

Guidance from City Council will be sought during City Council's regular agenda.