News Feature | November 11, 2013

Texas Drought Cuts Into Revenue At Water Utilities

Sara Jerome

By Sara Jerome,

The water shortage in Texas is drying up the sales revenue at water utilities.

That's according to a Fitch Ratings report assessing how the drought is impacting the financial landscape in the water industry.

"With reservoir levels again dropping this year, we expect water conservation efforts to date to result in reduced usage and therefore sales revenue in this year's financial results,” Managing Director Doug Scott said in a statement.

The downward spiral is not expected to end anytime soon, he said. 

"Meteorological models predict the drought to persist or worsen in many areas of Texas over the coming months. Retailers' ability to offset declining revenues will be key to maintaining financial flexibility," he said. 

Variations in water resources, finances, and precipitation mean the drought is not having a uniform effect on the industry, the report noted.

How are water companies handling the crunch? Some are tinkering with charges.

"With most utilities capturing 80 percent or more of revenues from volume charges, one option, employed by the city of Austin, is to increase base charges," the report said. 

Utilities are already seeing the effects in their numbers this year.

"Some small West Texas towns that have already implemented severe water restrictions are seeing a sharp drop in revenue — just at a time when they need to replace breaking pipes and seek expensive new supplies," The Christian Science Monitor reported

Dry-spells have been scorching the Texas water sector for years. In the long-term, at least one Austin water utility did not foresee major service interruptions because of drought, the Texas Tribute reported last week. 

“We’re never going to face a situation where Austinites don’t have water,” Greg Meszaros, director of the Austin Water Utility, said in the report. “We still see the Colorado River [in Texas] as our primary source of water. It’s reliable.” 

Beyond the water sector, the drought is bad for the state economy in general.

The New York Times reported earlier this year that Cargill, the food company, "idled a beef-processing plant in Plainview in the Texas Panhandle earlier this year after ranchers thinned their herds because of dry pastures and soaring hay prices," 

The drought is particularly hard on agriculture. 

Bloomberg reported that agricultural losses from the drought "have reached a record $5.2 billion and may worsen without more rain." The report cited the Texas AgriLife Extension Service, a unit of Texas A&M University.

"Estimated losses in livestock production reached $2.06 billion, costs to cotton producers total $1.8 billion, and hay losses rose to $750 million. The value of lost wheat, corn and sorghum production was $633 million," the report said. 

The Tribune piece said that last year for the first time, "the Lower Colorado River Authority cut off water to many rice farmers, and they have not received any since."

As the drought cuts into revenue, the government is looking to take action, Water Online previously reported. Click here to read about a proposal to divert billions of dollars in state funds to water projects.


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