Staff says Kerrville’s reclaimed-water system runs at a loss; proposes rate changes to reduce burden on water fund

City staff on June 10 told the Kerrville City Council workshop that the city’s reclaimed (reused) water system is paying much more to operate and service debt than it collects in customer fees, and presented rate models the city could use to reduce pressure on the Water and Sewer Fund.

Rodriguez, a city staff member, said the reclaimed-water retention pond and associated distribution system — completed in 2020 — was a $21.7 million project funded with a 2016 bond series (about $8.035 million allocated by the city), a $7.5 million loan from KPUB and a $3 million contribution from the EIC. "We had some undesignated funds...and then we had some old unused bond dollars that we went ahead and used up for the water system to complete that $21,700,000 project," Rodriguez said.

Rodriguez told council the system has a storage capacity of about 90,000,000 gallons and that annual operating costs for chemicals, electricity, routine maintenance and small repairs are about $74,000. Combined with remaining debt service — about $634,000 per year on the bond series plus about $1,100,000 per year on the KPUB loan — the system’s annual cash requirement is roughly $1.8 million.

By comparison, Rodriguez said reclaimed-water customers used about 259,900,000 gallons in the last 12 months (roughly 21.6 million gallons per month) and generated about $178,000 in revenue under current rates. The city has nine larger customers under the reclaimed system; most contracts were written with 15–20 year terms and five-year auto renewals, and two contracts currently include locked rates with a maximum 2% annual increase.

"The return on investment is not going to be a financial one for these types of systems," Rodriguez said, adding that the primary financial benefit is conserving potable drinking water. Still, Rodriguez said, the city must address the system's operating deficit.

Staff presented benchmarking of other cities’ reclaimed-water rates and two broad rate approaches: a tiered volumetric schedule that mirrors the city’s potable irrigation structure and a flat monthly base-charge approach. Benchmarks showed other cities’ average reclaimed-water base charge around $248 per month and median $145; per-1,000-gallon tiered volumetric rates in the benchmark set averaged about $2.67 (median $2.33).

Using local consumption and a projected 10% haircut to account for uncertainty, staff modeled scenarios that would raise reclaimed-water revenue closer to industry norms. Examples discussed included doubling the current volumetric rate (from $0.75 to $1.50 per 1,000 gallons) in an initial year and phasing additional increases over a multi-year transition, and a flat-monthly charge option that would recover a larger share of fixed operating costs.

Council members asked several operational questions: which contracts remain active (Rodriguez said some school-district connections predate the pond and need updated agreements), whether customers should face "take-or-pay" requirements so reserved but unused allocations do not block new users, and what potable-irrigation savings customers realize. Staff said the irrigation potable tiers range roughly from $4.60 per 1,000 gallons upward depending on volume, and that reclaimed rates remain substantially lower than current potable irrigation tier prices.

Rodriguez said staff will present refined rate proposals at the upcoming fiscal year 2026 Water Fund budget workshop and asked council to provide policy direction on issues such as treatment of contracted customers, base-charge design and whether to adopt a phased increase. No formal rate change was adopted at the workshop.