DALLAS - The wettest May on record has brought an end to Texas' four-year drought and should have positive credit implications for water utilities around the state, according to Fitch Ratings.
Texas averaged nearly 9 inches of rain for the month of May. The town of Gainesville near the Oklahoma border received 28.90 inches, while Dallas recorded 16.96 inches, the wettest May in 73 years.
The May downpours created flooding in Dallas-Fort Worth, Austin, San Antonio and Houston, among other areas. While the damage will require repairs, the filling of reservoirs should have long-term benefits.
"This could have a positive impact on Texas water and sewer utilities' financial margins should customers return to normalized usage patterns and water consumption increases," according to Fitch analyst Teri Wenck.
"Fitch believes that, to date, the long term and local planning efforts taken by municipal utilities have contributed to the relatively minimal number of negative rating actions despite the financial and operating pressures driven by the drought," Wenck added. "Where rating declines have occurred, these were largely attributed to governing bodies' lack of action to raise rates to offset drought triggered usage declines."
The heavy spring rainfalls - enough to cover the entire state in 8 inches of water -- was attributed to a phenomenon in the Pacific Ocean called El Nino, in which the water temperature runs higher than normal.
Ninety-four of Texas' 254 counties were declared disasters by Gov. Greg Abbott.
"Despite flood events most of the Fitch rated water and sewer utilities should be able to absorb needed system repairs without such costs having a material impact on the underlying credit quality," Wenck wrote.
Austin experienced localized street flooding and the city's water utility reported numerous wastewater overflows as a result of the downpours. The city of Austin noted there were no material interruptions to service or asset destruction.
Houston also experienced significant area flooding. Houston estimates approximately $25 million in damages to one of its treatment plants resulting from the flooding, but does not anticipate additional pressures related to its EPA consent decree in regards to sanitary sewer overflows, according to Fitch.
San Antonio Water System, also under EPA consent decree relating to sewer operations, experienced an increase in overflows in May as a result of the heavy rainfalls.
"Despite this increase, the level of SSOs in May is lower compared to other wet periods experienced between 2009 and 2014," Fitch noted. "Moreover, management reports that the rainfall actually assisted its efforts of flow monitoring and evaluation of hydraulic capacity constraints to help reduce future SSO occurrences, and its cost forecast with regard to the consent decree capital plan remains on track with the original budget."
San Antonio lifted its drought restrictions for the first time since April 2011 on June 10, 2015.
