City staff told the council Wednesday that the municipal utility fund will need modest, phased rate adjustments to prepare for a major jump in raw-water costs when the city’s long-standing contract with the Sabine River Authority renews in 2027 and to cover debt for a planned wastewater treatment plant rehabilitation.
The presentation laid out how the utility fund operates like an enterprise business: water and sewer are charged as fees for service rather than taxes, revenues are driven by billed volumes, and the fund must carry assets and liabilities on a business-style statement.
Staff said the city currently purchases the majority of its surface water from Lake Tawakoni under a long-term contract that was locked at a historically low 3¢ per thousand gallons; that contract may move to a market rate (staff cited 39¢ per thousand as an illustration of prevailing rates) when it renews in 2027. Because the city’s contracted volume (7,500 acre-feet per year) substantially exceeds current use (about 1,500 acre-feet annually), staff proposed reducing the contracted volume on renewal to roughly 3,500 acre-feet to avoid a near‑tenfold increase in annual raw‑water cost.
Staff also described the city’s near‑term plan to keep rates gradually higher than a low‑consumption budget year so that the fund builds cash for capital work. Fiscal 2026 utility revenue was presented as $7,464,098 (about $135,000 above a prior budget figure), with roughly 94% coming from charges for services.
On wastewater, staff noted an active capital project to rehabilitate the treatment plant — an approximately $8,000,000 project — intended to restore design capacity (2 million gallons per day) and to resolve storage and treatment constraints that now force the plant to store storm surge water on site during big rain events. The budget proposal anticipates debt service tied to that project.
Council members asked questions about the timing of the Sabine River contract renewal, whether the city could instead rely on Cooper Lake water rights, and how tap and service fees are modeled. Staff said Cooper Lake remains a lower‑cost long‑term option but raised engineering and operational concerns: the nearest high‑capacity transmission line and pump operations outside the city’s control could result in periodic outages if the city were to rely solely on that source without redundant supplies.
Staff emphasized that rate design also includes a lifeline tier so that basic household water (presented as the first 4,000 gallons per month) is priced below the variable production cost for affordability, with conservation tiers above that. The presenters said the city forecasts conservatively (using slightly below average historical consumption) so the utility fund will not over‑rely on high‑use years when setting rates.
Looking ahead, staff told the council the water‑contract decision expected in late 2027 will drive a more significant rate decision for fiscal 2028, and the current budget aims to phase in revenue and debt service so residents are not presented with a single, large rate shock.