This story was produced in partnership with Inside Climate News and the Texas Newsroom, the state’s network of public radio stations.
For years, Corpus Christi sold water to several large industrial plants at discounted rates, as revealed by documents and city officials. This arrangement led residents and businesses to pay over $100 million to subsidize water for major energy companies, according to the city’s rate models.
Three years ago, the city doubled the water rates for companies like Valero, Citgo, and LyondellBassell to address this imbalance. These companies contested the increase with state regulators, prompting a legal battle. Today, a public hearing begins in front of an independent state agency in Austin.
The hearing’s outcome could significantly impact Corpus Christi, which is facing a critical water supply crisis, and the energy companies that have long influenced its economy. Should the companies succeed, the city might have to refund millions, even as it seeks funding for new projects and increases rates for other consumers.
“I’m holding my breath,” said Sylvia Campos, a city council member who advocated for higher industrial water rates. “Let’s hope we don’t have to pay them back.”
Valero, Citgo, and LyondellBassell, operating outside the city limits, commented through the Affordable Water for Corpus Christi group. “The issue before the Public Utility Commission is whether the City’s rates were developed using a fair, evidence-based, and legally compliant methodology,” said Heath Armstrong, a lawyer for the group.
Campos responded: “They know very well how long they’ve avoided paying their fair share.”
The industry’s arguments for lower rates are detailed in documents filed with the Public Utility Commission of Texas. In one filing, a consultant argued that the group’s members should receive a discount since they don’t benefit from infrastructure in the same way as inside-city users.
Kamil Taras, assistant director for finance and administration, disagreed. He stated that industrial facilities benefit from the entire distribution system managed by the city’s utility, not just the portion connecting them to the treatment plant.
Earlier this year, the companies demanded a refund of nearly $80 million from the rate increases, noted a city memo summarizing the filings. Commission staff recommended a refund of $6 million.
Taras indicated that Valero proposed settling the case for $4 million, but the city opted for a public hearing at the State Office of Administrative Hearings instead.
During the three-day hearing, officials and companies will present their cases to an administrative law judge. The judge will make a recommendation, but the final decision rests with the utilities commission.
Peter Zanoni, the city manager, hopes to maintain the rate increases because “the large industry is not paying their fair share” for water.
He explained, “It’s not fair for families to support billion-dollar corporations by subsidizing their water bills.”
Water Systems Face Funding Shortfall
Even amid challenges on recent rate hikes, Corpus Christi officials acknowledge the need to continue raising rates for new water projects. This issue is widespread in Texas, with the latest water plan estimating a $174 billion cost to prevent shortages in 50 years.
Republican state Sen. Charles Perry emphasized the financial burden of meeting water needs during a hearing in May.
Perry stated that communities should prepare for potentially doubling water costs, a necessity for securing water in Texas.
City officials in Corpus Christi aim to address these challenges by targeting large industrial users who previously benefited from lower rates.
In 2016, industrial customers paid about $2 per 1,000 gallons, far less than residential and commercial rates. A 2023 study revealed these rates did not accurately reflect the city’s expenses for water.
The study confirmed that the city lost $15 million annually by providing water to major industrial users, while smaller businesses overpaid by $9 million.
For Zanoni, the study validated longstanding suspicions from his tenure in San Antonio. “The large industry is not paying their fair share,” he said, noting the financial burden on residents and businesses.
In fall 2023, the city council doubled rates for large-volume users to correct the imbalance. The change increased Valero’s annual water bill from $9 million to $18 million.
The council’s vote was 8-to-1, with some considering the increase abrupt. Council member Roland Barrera, who opposed the decision, agreed rates needed to rise but not so steeply.
Barrera mentioned that discounted rates aimed to attract industrial investment, preventing companies from choosing regions with abundant water.
Companies argue for discounts based on proximity to the treatment plant, minimizing distribution system use. However, Zanoni noted that water delivery involves the entire grid, impacting all consumers.
Corpus Christi’s new industrial water rates aim for equitable cost distribution, reducing the burden on small businesses subsidizing large corporations.
“We’re sued for charging fair rates to big industry,” Zanoni said. “Industry is not being a good partner with the city.”
Original Story at insideclimatenews.org