San Marcos council approves electric and water rate changes amid warnings about bond covenants

The San Marcos City Council on Sept. 16 approved updated rates for the electric utility and for water, wholesale water, reclaimed water and wastewater treatment services. Council passed the electric-rate ordinance on second reading and the water/wastewater ordinance after public and council debate about financial stability and legal debt covenants.

Director of Utilities Tyler York explained the rate structure and why a minimum (base) charge exists separate from consumption charges. He said the base portion is intended to cover fixed costs such as debt service and system overhead; for electric service the minimum monthly charge discussed in the meeting was $14.31. York said a properly structured base rate helps ensure the enterprise fund meets required coverage ratios.

Nut graf: Staff told council that failing to adopt recommended rate adjustments could push the electric fund below its required debt-service coverage and hurt the utility’s bond rating. Council approved both rate ordinances but by narrower margins, signaling ongoing concern about rate impacts on customers.

Key facts - Ordinance 2025-39 (electric rates) was approved on second reading; the motion passed 5–2. - Ordinance 2025-40 (water, reclaimed, wastewater) was approved on second reading; the motion passed 4–3. - Staff warned that the electric utility’s bond rating is a single-notch-above non-investment-grade and that not adopting rate increases could put the utility below the 1.2 debt-service coverage ratio required by bond covenants.

Supporting details and council debate Council members debated the fairness of a fixed minimum charge for customers who use little or no energy in a month. Councilmember Scott proposed temporarily waiving or reducing the fixed monthly minimum for residential meters to give immediate relief; staff explained that the enterprise funds are legally separate from the general fund and that any reduction in utility revenue would need to be recovered elsewhere in the utility rate structure or by cutting service or capital plans.

York and Finance staff said the utility’s coverage ratio target (1.2 times debt service) could be breached if forecast revenues are not achieved, and that covenant breach could expose the city to litigation risk from bondholders and further downgrade the utility’s borrowing costs. The presentation included a reminder that franchise-fee revenue flowing to the general fund depends on the utility’s revenues.

Quote - "If you don't recover that... then you're going to put us below our legal limit" for debt-service coverage, — City finance staff (summary of bond covenant risk). - "We're already not charging as high a base rate as what we could because we're trying to be sympathetic to that exact concern," — Tyler York, Director of Utilities.

Ending Council approved both rate ordinances after debate. Staff will implement the new schedules and continue to monitor revenues and coverage ratios; council and staff said they will revisit rate structure options as part of the city’s next cost-of-service study.

sections":{"lede":"Council approved new electric and water/wastewater rates despite council concern about customer impacts and warnings staff provided about debt-service coverage and bond ratings.","nut_graf":"Staff said rate increases are necessary to maintain required debt-service coverage and to avoid further hits to the utility’s bond rating; council passed the ordinances by narrow margins.","ending":"Staff will implement the approved rates, continue monitoring coverage ratios and return with cost-of-service analysis during the next rate study."},