1. Securing Water Supplies for New Development Leonard H. Dougal Jackson Walker L.L.P. ldougal@jw.com (512) 236-2000 Austin Bar Association Real Estate Law Group November 2008

2. Introduction Retail Water Service and CCNs –CCN Basics –Municipal Growth and CCN Conflicts –Expedited CCN Release Amenity Lakes Contract Enforceability

3. Types of Retail Public Utilities Providing Water/Sewer Municipalities Taxing Districts (MUDs, WCIDs, etc) Investor-Owned Utilities Non-Profit WSCs/Special Utility Districts Counties

4. Certificates of Convenience and Necessity CCN MunicipalitiesOptional Districts (MUDs, WCIDs, SUDs)Optional Investor-owned UtilitiesRequired Non-Profit WSCsRequired CountiesOptional

5. What Is A CCN? Certificate of Convenience and Necessity — A permit issued by the [TCEQ] which authorizes and obligates a retail public utility to furnish, make available, render, or extend continuous and adequate retail water or sewer utility service to a specified geographic area. 30 TAC §291.3

9. CCN Service Exemptions Private Water Well Service to only one other property (mother-in- law) Incident of tenancy Provision without compensation Non-potable water

10. Municipal Growth and CCN Conflicts Municipality Has Authority to Serve Beyond Corporate Limits But, Prohibited from Serving in Another Utility’s CCN Annexation Does Not alter CCN Boundaries Incumbent CCN Holder May Continue to Serve Annexed Areas

12. Municipal Service Extensions Into Another’s CCN By Agreement – Water Code §13.248 Annexation and Voluntary Transfer – Water Code §13.255(a) Annexation and “Condemnation” of CCN Water Code §13.255(b) –Only WSCs, SUDs, FWSDs –Not IOUs –Payment of Compensation Required –Federal Debt Restrictions

13. CCN Reform HB 2876 (2005) Notice to Landowner of CCN Application for Amendment 25+ Acres Landowner Petition for Expedited Release from CCN Filing of CCN Boundaries in County Real Property Records Voided Municipal CCNs Beyond ETJ –Revised by SB 3 (2007)

14. CCN Decertification By TCEQ Water Code 13.254 Involuntary Decertification –Failure to Provide Continuous and Adequate Service Landowner’s Expedited Release Petition –New in 2005 –Largely Untested

15. Expedited CCN Release Process and Issues Landowner 50+ Acres Requested Service from CCN Holder CCN Holder’s Response is Unacceptable Has Service Commitment from an Alternative Utility File Petition at TCEQ “Just and Adequate” Compensation to CCN Holder

16. Expedited Release Petition – Fundamental Issues Explanation Why the CCN Holder’s Response is Unacceptable: –Refused to Provide Service; –Not Capable of Providing Service; or –Conditions the Service on Payment of Costs Not Properly Allocable Directly to the Petitioner’s Service Request

17. Expedited Release TCEQ’s Role APA Contested Hearing Process Does Not Apply to Petition Informal Agency Action ED “Shall Grant” Petition, Unless –Petitioner Failed to Satisfy Rule; and –ED Supports Findings For Each Element –Based Solely on Information Provided by Petitioner and Incumbent Utility Commission Decision May Not Be Appealed

18. Federal Debt Protection 7 U.S.C. §1926(b) “The service provided or made available [by a federally indebted rural water] association shall not be curtailed or limited by inclusion of the area... within the boundaries of any municipal corporation or other public body, or by the granting of any private franchise for similar service within such area during the term of such loan.”

19. Expedited Release Meets Federal Debt Typical 1926(b) Case – Municipal Encroachment or Competition “Does § 1926(b) also preclude a state regulatory agency from modifying the service area of a federally indebted utility. But we leave that issue for another day” North Alamo Water Supply Corporation v. City of San Juan, (5th Cir. 1995)

20. Application of Jona Acquisition Inc Travis County

21. Expedited Release Summary Usefulness of Expedited Release Process ED’s Decisions – Two CCN Releases Granted “Public” Data-Base of CCN Valuations Legislative Adjustments?

22. Amenity Lakes

23. Amenity Lakes – Water Rights Permitting Unless exempt, TCEQ Water Rights Permit Required to Divert, Use or Impound State Water (Water Code 11.121) State Water – The water of the ordinary flow, underflow, and tides of every flowing river, natural stream, and lake... and the stormwater, floodwater, and rainwater of every river, natural stream, and watercourse in the state. ( 30 TAC 297.1) Diffuse Surface Water - belongs to the owner of the land on which it gathers... prior to its passage into a natural watercourse. Turner v. Big Lake Oil Co. (Tex. 1936).

24. Amenity Lakes D&L Impoundments Pre-Existing Exempt D&L Impoundments –200 acre-feet or less –Wildlife Exemption (Added 2001) New Development – Residential Subdivision “Domestic Use” Definition Includes “Water Recreation” Mere Subdivision of Land Does Not Reduce Downstream Water Supply

25. Amenity Lakes – Permit Issues TCEQ Asserts: “Conversion” of On-Channel D&L Exempt to Amenity Lake Requires Water Rights Permit –D&L/Wildlife Exemptions Not Applicable to “Commercial Operation” –Housing Development = “Commercial Operation” –Permit for Recreational Use

26. Amenity Lakes - Permitting Westerra Stonebridge Rulemaking Petition –Pre-existing Exempt Reservoir –Corps CWA 404 Approval –Petition Denied by TCEQ Permit Issues –Difficult –Lack of Unappropriated Water –Cost/Availability of Supplemental Water (Purchased water, Groundwater, Diffuse Surface Water) –Protest by Senior Water Rights Holders

27. Amenity Lake Supplied by Groundwater

29. Contract Enforceability Tooke v. City of Mexia, 197 S.W.3d 325 (Tex. 2006) –“Sue and be sued” is not a clear and unambiguous waiver of sovereign immunity –Overruled Missouri Pacific Railroad (Tex. 1970) HB 2039 (2005) only waives immunity for parties who contract to provide goods or services to local governments (Local Gov’t Code §271.151 et seq.) How to enforce a water supply contract with a river authority, water district, city, etc.?

30. Contract Enforceability Water Districts Water Code §49.066(a): A district may sue and be sued in the courts of this state in the name of the district by and through its board. A suit for contract damages may be brought against a district only on a written contract of the district approved by the district’s board. Four Recent Cases Hold Section 49.066(a) Is Not a Waiver See, Bexar Metro. Water Dist. v. Educ. & Econ. Dev. Joint Venture, 220 S.W.3d 25, 32 (Tex. App.—San Antonio 2006, pet. filed)

31. QUESTIONS?