An outside buyer might affect water rates, terms of agreement

LEANDER — The Lower Colorado River Authority’s plan to sell 32 water and wastewater systems, including the Sandy Creek water system that serves Leander, led the City of Leander to prepare a petition for eminent domain to protect its citizens.
The City Council authorized the staff to prepare the petition in January. Since the water system is for public use, the city will attempt to buy out the LCRA and take over the water system, which provides water from Lake Travis to about 9,000 residents of Leander.

“I’m going to do everything I can to protect my city,” Leander Mayor John Cowman said. “We’re beginning this process because we have the rights and we’re going to be exercising them to help our citizens.”

The decision by Leander came after the LCRA passed a resolution Nov. 17 to sell 32 water and wastewater systems as a single unit instead of allowing the affected entities to try to find a solution, Cowman said.

The 32 systems serve about 125,000 people throughout Central Texas—including the cities of West Lake Hills, Bee Cave, Rollingwood and Liberty Hill along with Williamson, Travis, Bastrop and Burnet counties.

Many of the entities, including Leander, joined an informal coalition to gain leverage in negotiations with the LCRA.

LCRA officials say selling the systems would not only rid them of a $3.5 million shortfall, but also allow the authority to focus on providing electric power generation and managing the water supply.

“I understand people may be upset or bitter about that,” LCRA spokesman Robert Cullick said. “But the facts are that the systems don’t stand on their own.”
History

One reason leading to the revenue deficit stems from the way the state government established the LCRA.

The Texas Legislature created the organization in 1934 with the board of directors selected by the governor and confirmed by the state Senate.

The organization has no taxing authority, and revenue from utilities and fees from supplying services is the sole source of funding for operations.

Cullick said the 32 water and wastewater systems were built throughout the 1990s and early 2000s in response to the needs in various communities, spreading from Lometa southeast along the Colorado River to the Gulf of Matagorda Bay.

The Sandy Creek plant was built in September 2001, during a time when Leander was in crisis because of a water shortage, Cowman said.

“It was wonderful [how the LCRA rescued us]. What a great partnership to use the power of a state-run agency to help us,” he said.

At the time, the LCRA was Leander’s hero for providing the city a source for water, said Pix Howell, urban design officer for Leander.
Cullick said part of the LCRA’s mission is “supporting community and economic development,” but it is only required to make raw water available for sale, not to treat and distribute it.

The board of directors began looking at how to make the systems self-sufficient in 2006. After years of adjusting and cutting costs, the systems still failed to pay for themselves.

Howell said some of the systems have very small service areas, giving them little chance of having a positive cash flow. However, he said other systems, such as Sandy Creek, “have a future and a good customer base.”

During the Nov. 17 LCRA board meeting, four criteria were established for a potential buyer, including ability to provide quality service, ability to invest for needed infrastructure, commitment to meet state regulations and a willingness to compensate LCRA for its investment.

LCRA officials said they hope unloading the responsibility of water and wastewater management allows them to tackle the more pressing issue of regional water availability, Cullick said.

“At the end of the day, it costs us more than $3 million each year, and we can’t ask other customers to make up for the rates that folks don’t want to pay,” he said.
The issue

Howell said the issue is not that the LCRA is selling the water systems, but they are being sold as a bulk package, instead of allowing the entities that use the systems to find solutions where the systems can be purchased individually.

“The LCRA put a price on [the systems] that reflects all their investments. The costs are unrealistic,” he said.

Another issue for Leander and the other entities involved is the loss of the terms of agreement if the LCRA sells to an outside buyer.

“Right now we have agreements with the LCRA that give us some assurances, such as rates. When sold, Leander would have to pay whatever rates the new buyer sets or go to the Texas Commission on Environmental Quality and file a rate case,” Howell said. “This damages communities because we won’t have any control or assurances.”

For the 9,000 citizens who receive water from Sandy Creek, they would not see a change in service if the system was sold, but it could have an impact on the amount they pay if the outside buyer opts for higher rates, Howell said.

During an LCRA board meeting Jan. 19, Cowman spoke on behalf of the coalition of entities, asking the board to allow the coalition to help negotiate in finding a solution without selling the systems to an outside buyer.

In the presentation, Cowman said he and the rest of the coalition recognized the necessity for the LCRA to have purchased the systems, and appreciated the agency’s role.

“Had you not done this, then we would probably be experiencing regional environmental catastrophe in our rivers, lakes and streams,” Cowman said during his speech.
However, the board’s decision Nov. 17 poses a problem that the coalition wants to help solve, he said.

“We, a coalition of many, your partners, have come together united and are here today to begin assisting the LCRA with identifying a solution or solutions that are beneficial to our regional partner, the LCRA, as well as all of the stakeholders,” Cowman said in his presentation.

Outlined in the speech are five requests: postponing the LCRA’s plan to sell the systems; extending the 60-day deadline for negotiations to no sooner than Dec. 31; appointing stakeholders as delegates to the negotiation’s committee; granting the stakeholders of each of the 32 systems a “right of first refusal” to purchase its systems, respectively, from the LCRA by matching any third party offer; and granting negotiating opportunities for each of the stakeholder to work toward a purchase of the system.

In a letter to Cowman on Jan. 24, Thomas Mason, general manager of LCRA, said that no negotiations or offers have been made to Leander or another entity for the purchase of the Sandy Creek site as an individual sale.

“Our consultant has not ruled out the sale of individual systems to customers. We believe, however, that individual sales will decrease the value of any remaining systems, which would present LCRA with a higher probability of not recovering its investment,” Mason stated in the letter.
The next step

Because it is unclear whether LCRA will grant the coalition’s requests for an extension and negotiations, Leander City Council opted to file a petition to take over the system using eminent domain.

According to the Texas Property Code, an entity with eminent domain authority, such as a city, that wants to acquire property for public use but cannot settle on a price agreement with the property owner, can file a petition, or order of condemnation, in court to begin proceedings to purchase the property after a fair price has been determined by the court.

By filing the order, Howell said Leander will be able to seek an appraisal of the Sandy Creek system, allowing the city to get a price on the system’s individual worth instead of the price LCRA has for the entire 32 systems.

Scott Houston, general council for the Texas Municipal League, said an impartial three-person commission will be formed. The next step will be for Leander and the LCRA to submit evidence from their respective appraisals to the committee during a hearing, and the committee will make a decision.

“What the court will look at is what the paramount public use is, or does it make sense for the city to use its power to take it,” Houston said.

He said if the property is for public use, then eminent domain seizure could be done. The court will decide what price the water system will be sold for.

Cowman said this is not the process the city wants to take because he would rather see everyone work together.

“It’s not a very short process. It’s lengthy, and costs will be incurred on both sides. We don’t want that at all,” he said. “But, we do have rights and we are going to exercise those rights to get our voice heard. We do not know the outcome, but we are going to put our best foot forward to protect Leander to the fullest.”