A dispute over the cost of water has landed the Hidalgo County Water Improvement District No. 3 and its president, Othal Brand Jr., in a protracted legal battle with the district’s largest wholesale customer, the city of McAllen.
McAllen claims that the district has unfairly and exorbitantly increased the rate the city must pay for the untreated water supplied by the district.
Last October, the city filed a 197-page complaint with the Public Utility Commission of Texas appealing the new charges and accusing the water district of “abuse of its monopoly power.”
“The rate charged to (McAllen) by (Hidalgo County Water Improvement District No. 3) for raw water delivery is nearly double the average rate charged to (McAllen) by similarly situated districts and is 8.5 times the rate charged by HCWID to its other customers,” reads the city of McAllen’s complaint, in part.
However, the dispute has since become entangled in a morass of red tape in two separate venues — at the Public Utility Commission where the complaint was originally filed, and in the state district court where McAllen filed a lawsuit at the beginning of May.
The legal battle is just the latest chapter in a decadeslong series of disputes between McAllen and the district.
WATER SOURCES
McAllen gets its water from four different entities: Hidalgo County Irrigation Districts No. 1 and No. 2, the United Irrigation District, and lastly, the Hidalgo County Water Improvement District No. 3.
The city pays more than $1.7 million for just under 14,000 acre feet of water per year, regardless of whether District No. 3 delivers the full volume of water to the Boeye Reservoir near La Plaza Mall.
It’s only after the water arrives there that it is processed, cleaned and delivered to more than 200,000 residential and commercial customers within the service area of the city’s water and wastewater service provider, the McAllen Public Utility.
Upwards of 90% of the water District No. 3 pumps from the river goes to McAllen and its customers; however, the district does supply a nominal amount of water for the irrigation of some 1,300 acres of land, according to the city’s complaint.
Last July, the district notified McAllen that it would be increasing its rates by 17% — from $97.67 per acre-foot of water to $113.96.
That rate hike, the city said, would increase its payment obligations to the water district by $250,000 per year.
On May 2, the city filed a lawsuit in the 398th state District Court claiming that District No. 3 has increased its rates by more than 70% since 2012, far in excess of rate changes at the city’s three other water suppliers.
In comparison, Hidalgo County Irrigation District No. 1 charges the city just $51.77 per acre-foot, while Irrigation District No. 2’s rate of $51.26 has remained unchanged since 2012, court records show.
Meanwhile, the city’s fourth water supplier, United Irrigation District, has raised its rates just 12% over the last 10 years — from $53.44 per acre-foot in 2012 to $59.96 per acre-foot in 2022.
CONTENTIOUS HISTORY
McAllen claims this latest rate hike violates a 1999 contract that governs the relationship between the city and the water district.
According to the contract, any changes to how the water district charges for water must be made “on the equivalent percentage basis as the adjustments … of others receiving water service from the district.”
In other words, if the district changes its costs for one water customer, it must make similar rate changes for its other customers.
But McAllen claims that hasn’t happened — that instead, its costs have gone up while the district’s handful of agricultural customers have faced little, if any, change to their water bills.
When the city filed its complaint with the Texas Public Utility Commission on Nov. 5, 2021, it listed the unequal rate hikes as part of its criticism of District No. 3 and claimed that the rates are more than double what other water suppliers in the Rio Grande Valley charge.
But the city went much further than that.
McAllen claims that the underlying reasons for the exorbitant rates are the district’s “long and documented history of mismanagement, self-dealing and noncompliance with numerous applicable statutory requirements.”
Along with McAllen’s complaint, the district has drawn criticism from state lawmakers, who on Nov. 21, 2021, sent a letter urging the Texas PUC to take up the city’s complaint “as expeditiously as is legally allowable …”
The letter was signed by state Reps. Oscar Longoria, Sergio Muñoz Jr., Terry Canales, R.D. “Bobby” Guerra and state Sen. Juan “Chuy” Hinojosa.
Nor is this the first time that District No. 3 has garnered criticism from lawmakers.
In 2011, Hinojosa authored a bill that would have given McAllen voters the power to dissolve the water district and convert all its assets to the city of McAllen.
But then-Gov. Rick Perry vetoed the bill, saying it would set a dangerous precedent. Instead, the governor ordered that the water district be audited.
The results of that 2012 audit are included in the city’s complaint with the PUC.
According to its findings, District No. 3 had substantial financial issues, including faults in tracking its spending, in setting and maintaining a procurement process, and more.
McAllen claims that District No. 3 took steps to circumvent the corrective measures that were at the time ordered by the state after the audit.
The city claims the water district is doing so again in the wake of more recent legislation.
During the 2021 legislative session, Hinojosa again filed a bill to dissolve the water district. By the end of the 5-month session, however, the focus of the bill had changed toward increasing transparency and fiscal responsibility within the district.
But implementing those things requires money — something the water district said has contributed to the increased water rates.
“As you know the District will have new Legislative responsibilities to fulfill requiring additional cash outlay,” District No. 3 wrote in a letter addressed to the McAllen Public Utility’s general manager, Marco Vega.
TECHNICAL ISSUES
Shortly after the city filed its complaint at the Texas Public Utility Commission last October, the commission delegated the dispute to the consideration of an administrative law judge.
But several months later, the dispute has gotten hung up on a technical issue.
The administrative law judge issued a ruling on May 2 that “there is an underlying dispute about whether there is a contract that governs this dispute or a dispute about the interpretation of the provisions of the contract.”
That issue must be litigated in court before anything else can happen, the judge declared.
But the water district claims the administrative law judge has erred in that finding.
Neither the city of McAllen nor the water district dispute that the 1999 contract governs the relationship between them, the district argued in its May 11 appeal of the decision.
Nevertheless, the same day the administrative law judge issued that order, the city of McAllen filed its lawsuit in state district court.
In both its appeal before the administrative law judge and its response to the lawsuit, District No. 3 argues that the state court has no jurisdiction to hear the case.
Instead, the water district pleads with the court to send the dispute back to the PUC.
The court was slated to hold a hearing to determine jurisdiction last Monday, but it was called off at the 11th hour by both parties.
Meanwhile, the district’s appeal of the administrative law judge’s decision has gained traction with the state utility commission, which has set it for discussion at its next public meeting this Thursday.
