Corpus Christi's water supply woes trigger negative rating outlooks

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Two more rating agencies signaled concern about Corpus Christi's ability to boost water supplies by revising the outlook on their ratings for the city's utility system revenue bonds to negative from stable.

Fitch Ratings and S&P Global Ratings took the action in the wake of the Texas city's decision in September to effectively terminate its Inner Harbor Water Treatment Campus project, which would have been the state's first seawater desalination plant for municipal use.

The project's termination, which came as the estimated cost escalated to $1.2 billion, led Moody's Ratings on Sept. 10 to put its ratings for the city's approximately $2.1 billion of general obligation, sales tax revenue, and utility system revenue bonds under review for potential downgrade.

On Friday, Fitch, which rates Corpus Christi's utility system revenue bonds AA-minus, said the negative outlook reflects "uncertainty around completion of new supply projects within the framework of leverage pressures relative to the current operating risk profile."

"Management already expected the water supply to reach critically low levels prior to the cancellation, but the desal plant would have provided a more definitive timeline for conservation and curtailment before new supplies became available," Fitch said in a report. "The cancellation of the desal project increases uncertainty regarding the timeline for this additional supply."

S&P said last month its outlook revision to negative indicates a one-in-three chance the utility system's AA-minus rating could be lowered over the outlook period. It pointed to "execution risks related to the city's planned additional water supply projects over the outlook period, which we understand have been expedited due to the city council's lack of approval for the construction contract" for the desalination project. 

Spokespersons for the city did not immediately respond to a request for comment. 

The city council took action in October to boost water supplies by approving a $169.5 million groundwater agreement with Evangeline/Laguna, LP, that is expected to initially produce 12 million gallons of water daily by November 2026. The council also authorized an agreement with the Nueces River Authority that gives the city a $2.7 million option to secure 50 million gallons of water daily from a proposed seawater desalination plant.

"This city council has a path forward for water security, both short term and long term, and we have plans for medium-term needs for water," Corpus Christi City Manager Peter Zanoni told reporters Oct. 23.

Corpus Christi Water, which is the primary water supplier for a seven-county region, expected the desalination plant to produce up to 36 million gallons of potable water daily. The area is experiencing stage three drought conditions that triggered water-use restrictions. 

A water supply dashboard on the city's website indicates two western reservoirs will be depleted during the first half of 2027.