PHOTO by CYNDY SLOVAK BARTON

by BRAD ROLLINS

The last 60 days have been a whirlwind of activity surrounding critical water supplies for northern Hays and western Travis counties.

On Jan. 17, the Lower Colorado River Authority agreed to sell its West Travis County Regional Water and Wastewater system to a Public Utility Agency formed by Hays County and two partners. This was a 180-degree turn from a few weeks earlier when LCRA appeared headed toward selling the water system to a foreign-owned company.

The West Travis County Water and Wastewater system has about 7,000 retail water customers in northern Hays County and also is the wholesale supplier for the Dripping Springs Water Supply Corp. and municipal utility districts including those that serve the huge Belterra subdivision.

Days after the water system sell to Public Utility Agency was finalized, LCRA announced a blockbuster deal to acquire an additional 100,000 acre feet of water rights a year. Regional media wondered: Where are they going to get it? For clues, they need to look to Hays County new role as a mover and shaker in the region’s water supply issues.

Here’s what Whisenant had to say about how the deal came together and what it means for Hays County:

Mercury: What happened between the time that LCRA was saying that they were going to sell to the Canadian company Corix and just a few weeks later when they agreed to sell to Hays County and the Coalition of Central Texas Utility Development Corp? I’m guessing there was some arm-twisting going on there somewhere, politically speaking?

Whisenant: As far back as late September, the coalition had been in contact with Sen. Kirk Watson’s office. And as you’re probably aware he has some legislative initiative in the area of public utilities and rate authority and several other items. The senator actually was involved in the first real sit-down discussion between the UDC board, LCRA staff and LCRA board members.

The concept of the lease purchase, the plan to allow the UDC to provide a public option for the ownership of the system, was something he was involved in and that he was very supportive of.

Mercury: So during this period that the UDC was trying to get LCRA to sell the water system to them, the city of Bee Cave and two major subdivisions in western Travis County — and they happened to be partners of Hays County in the Utility Development Corp. — were tying up LCRA’s plans to raise rates in the TCEQ? And LCRA wanted that go away before they would sell the water/wastewater system to Hays County and its partners?

Whisenant: Once we got into the part of negotiations that involved action — working out this type of purchase arraignment — one of the conditions that came to bear was the rate cases would have to be dismissed. LCRA decided that was a must before they would go forward with the divestiture to the coalition.

The entities that were appealing the rate increases had actually gotten some partial decision out of the courts which somewhat favored  their position. LCRA said if they were going sell the asset, they wanted to make sure that the rate case was settled.

And along with that, quite frankly, we needed the TCEQ to approve the transfer of the Certificates of Convenience and Necessity [the legal authority to provide utility service in a given area] from LCRA to the coalition. Without those, we can’t sell water.

That was one of the formidable tasks that had to be done and the senator helped us communicate to TCEQ that this was something that ought to be done, and we were all able to come to the opinion that it was something that could be done.

Mercury: The Public Utility Agency that was formed to, in essence, to operate this water system is made up Hays County, the city of Bee Cave and West Travis County Municipal Utility District No. 5, the Lake Pointe subdivision. But the coalition started out with about a dozen members. Of all the groups involved in this, how did those three end up, basically, owning the PUA?

Whisenant: Besides Hays County, West Travis County Mud No. 5 actually encompasses the Uplands Water Treatment Plant and the water intake (from Lake Travis) is actually in the city of Bee Cave’s jurisdiction.

Another thing, these three were included because we have the entities that represent the majority of the people that are going to be serviced by the Public Utility Agency. About one-third of the people that are going be serviced from the current assets that are being divested live in the North Lakes country. The other two-thirds are are almost entirely represented by Hays County, the City of Bee Cave and the West Travis County MUDs.

Mercury: So you let’s talk about what you actually bought. You get the water intake and the treatment plant and the pipelines that take the water over parts of the two-county area.

Whisenant: Well, there’s a lot of piping that goes with that and you also get the retail customers. A good portion, probably one-third of the overall service area is direct retail service by LCRA and will now be served by the PUA. In Hays County, that number’s even more, probably two-thirds of people who get their water from this system, buy it direction from LCRA as direct, retail customers.

These people actually pay a monthly water bill to LCRA. The hope is that the PUA will wind up eventually — hopefully in the near future — in the wholesale business only. The PUA would deal with LCRA to contract to buy and then treat the water and get it to the areas where it’s being used. Hopefully those areas can form an entity or become part of an existing entity to take the wholesale water from the PUA and provide the retail function.

Mercury: The system that the PUA is buying includes the infrastructure but it doesn’t include any water. Is the PUA going to be at LCRA’s mercy on the water costs?

Whisenant: Well, being at their mercy is something you always have to guard against because they, quite frankly, have all the water. The best hope is that you can deal with them on a reasonable basis and there has been the communication between the parties involved right now that this is where we’re starting and we’ll see where we go from there. They understand as well as anyone how [the raw water rates] will affect our rate structure.

In the current rate structure we planned, business plan of the PUA has been based on the current raw water rates and the water costs LCRA currently has with those entities.

Mercury: If the PUA doesn’t intend on doing the retail end of it, who is? Is, for example, the Drippings Springs Water Supply Corp. going to expand to take in the areas where customers are currently served directly by LCRA?

Whisenant: We are starting with the intention that over a period of time, one to two years, the retail areas will eventually get an opportunity for any given area to have a period of self determination to create an entity to handle it or become part of an existing entity.

Mercury: Do you plan to expand this to other parts of the county?

Whisenant: Right now the current business model was based on rates of growth that are about one-third of what LCRA had projected and they are within the range of where current growth is going on. Without large-scale capital improvements, we will be able to handle that growth for the next five years. Our current model is built off a 3 percent annual growth and it looks like we’re going to be at about a 4 percent growth rate this year.

Through the next five operating years, there is in place in the current business plan some small capital improvement expenditures but it would be beyond five years before there would be any needs for any large scale capital improvements that increase the capacity of the system.

Mercury: What does the water system purchase mean in terms of the development implications for the county. Is this going to open up more of the county for real estate development?

Whisenant: When you take a public entity like the PUA, it is a revenue-supported entity. It doesn’t have access to the funds that a investor-owned company might have to accommodate, and maybe to some extent promote, growth. A revenue-supported entity means that ratepayer is the person that pays the bills to keep the things operating.

Expansion of the PUA is going have to be expansion that funds itself. The additional infrastructure needed to support the development or growth of a system is going to have to come from the growth itself, not from the taxpayer or the ratepayer.

In other words an investor is probably going to have more resources to expand the system on the front-end than a public entity like the PUA because they’re looking for the opportunity to have a greater return on their investment in the future. There’s not that [investor pressure] to expand through a public entity that you would have through a private company.

Mercury: As you know, county governments don’t have the land use authority that city governments have to regulate what is built and where it is built. There are those who think this is a problem for urbanizing counties like Hays. Do you see this as being something that gives you some leverage over developers because you will control the water and who gets it?

Whisenant: Well I don’t particularly like to call it leverage but I guess depending on what side of the equation you’re on, you can consider it that.

Developers are really going to have to have projects that will economically stand on their own  because the PUA is not going to have the funds and, in my opinion, is not going to have the inclination to go out and make a public investment for a private return.

It’s not the ratepayer or the taxpayer’s responsibility if an investor has assets and and wants to improve them to gain a return from that investment. That is going to be their responsibility [to pay to expand the system to accommodate new land development].

Where the PUA could fit into this as a type of keystone would be that they have the ability to supply water that would give a developer economic opportunity — but the developer is going to have to provide the income to pay for the additional infrastructure.

Mercury: I’m hoping you can help me understand the big picture.

In August, Hays County signed a memorandum of understanding with Forestar Group Inc., which plans to drill into the Simsboro formation of the Carrizo Wilcox Aquifer in Lee County and transport the water back to the Interstate 35 corridor as a major future water source. Hays County says it is going to buy 25,000 to 45,000 acre feet of water each year for 50 years from this company — that’s at least double what we use now annually. And as a backdrop to all of this, LCRA has settled a major lawsuit brought by the San Antonio Water System basically committing LCRA to provide water — water LCRA doesn’t really have — to San Antonio.

How do these pieces fit together?

Whisenant: The Forestar agreement was, really, a stake in the ground that gives us the ability to look at what possibilities this water supply does present for Hays County. There’s been no financial commitment. It’s more like an agreement to conduct a feasibility study of this water supply that Forestar claims they would have.

In existing state law, there are limitations on when surface water can be transferred from one river basin to another river basin. LCRA has commitments for providing water to other entities outside the Colorado River basin so, according to state law, they really aren’t allowed to use surface water [from Lake Travis and the highland lakes] for this purpose.

So the opportunity is, if Hays County were to work with LCRA in terms of water so that LCRA has the ability to meet its commitments by offsetting their surface water with a groundwater supply, the groundwater is not subject to this consideration in state law.

Mercury: So if the LCRA was going buy groundwater from Forestar — either through Hays County or whatever — then that frees up some of their surface water to sell to San Antonio or whoever.

Whisenant: Possibly. I’m not really getting any good reviews on that but I would say that is the general concept of this. It’s all incredibly complicated, even more so than I am able to understand.

Mercury: It’s fascinating — all the pieces on the chess board being moved around.

Whisenant: I got involved with water when I was very young because it interested me and I was able to make a living doing it [as a well driller]. When you stop and think about it, water is just pretty hard to do without.

I’ve seen this county grow from, you know, 25,000 people to 150,000 people and more. And I think some of those changes have been for the good. If you look back on the type of life that people lived in Hays County in the mid-1950s, the last time we had a drought of record, there was a lot of suffering and I think life was harder.