DALLAS -- Texas' continuing drought will increase financial pressure on public water and sewer utilities, according to a Fitch Ratings report.

“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,” Fitch managing director Doug Scott wrote in the report released Thursday.

“In addition, meteorological models predict the drought to persist or worsen in many areas of Texas over the coming months,” Scott added. “Retailers' ability to offset declining revenues will be key to maintaining financial flexibility.”

With most utilities capturing 80% or more of revenues from volume

charges, one option, employed by the City of Austin, is to increase base charges, Scott noted.

Since April 2013, Fitch has downgraded the city of Fort Worth's water and sewer bonds, the first downgrade directly correlated to the drought, and placed two other systems on negative outlook, including water and sewer revenue bonds issued by the city of Garland and the San Patricio Municipal Water District.

Varying supply levels, precipitation and financial cushion will affect individual utilities and their ratings differently, Scott said.

The report comes as Texas voters face a decision on whether to approve tap the state’s $2 billion rainy day fund for water projects around the state. Water was a major topic during the 2013 Texas legislative session. About 100 new water-related bills were passed during the session.

“Fitch will continue to monitor them, including the major water infrastructure funding legislation on the November 2013 ballot,” Scott wrote.

Subscribe Now

Independent and authoritative analysis and perspective for the bond buying industry.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.