On November 28, 2012, a subcommittee of the Senate Natural Resources Committee met to discuss various issues related to the rates and services of investor-owned water utilities (IOUs). 

Much of the hearing focused on the very high rates that are charged by some IOUs.   In some cases, city residents who are served by IOUs pay more than three times as much for water service than their neighbors who are served by the city’s water utility. 

At the November 28 hearing, Senator Robert Deuell (R – Greenville) asked a representative of an IOU why IOU rates are frequently higher than municipal rates.  The answer provided by the IOU representative, while somewhat unclear, appeared to be that cities use taxes to subsidize their water utilities. 

In fact, the answer is – in most cases – the opposite.  Many cities transfer profits from their utility systems to the general fund.  Even taking into account that municipal utility customers receive the added benefits of fund transfers (i.e., some cities use transferred utility profits to provide more services that citizens demand while keeping property tax rates low, rather than transferring profits to investors), municipal utility ratepayers generally pay less for service than their investor-served counterparts.

TML member cities may use the material herein for any purpose. No other person or entity may reproduce, duplicate, or distribute any part of this document without the written authorization of the Texas Municipal League.

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