2012 Utility Update TCEQ Water Utilities Program

1. 2012 Utility UpdateTCEQ Water Utilities Program Todd Galiga Environmental Law Division Office of Legal Services

2. Updates From Last Year SB 573 CCN Release Process – One Glorious Year Later SER – Streamlined Expedited Release 29 petitions filed since 9/1/11

3. Updates From Last Year SER Petitions: 18 were granted 8 were withdrawn or returned 3 pending

4. Updates From Last Year SER Petitions: 23 petitions filed in first four months after effective date of statute 6 filed since 1/1/12

5. Updates From Last Year SER Petitions: Main issue – whether petitioner is receiving water or sewer service from the CCN holder.

6. Updates From Last Year SER Petitions: Texas Water Code § 13.002(21) - "Service" means any act performed, anything furnished or supplied, and any facilities or lines committed or used by a retail public utility in the performance of its duties under this chapter to its patrons, employees, other retail public utilities, and the public, as well as the interchange of facilities between two or more retail public utilities.

7. Updates From Last Year SER Petitions: 4 lawsuits over the new process Aqua WSC – Federal Court Aqua WSC – State Court Tri –Community WSC – State Court Crystal WSC – State Court

8. Updates From Last Year SER Petitions: Aqua WSC Federal Court Lawsuit ACC filed petition to release 98 acre tract located in city limits of Elgin from CCN of Aqua WSC Aqua filed suit in federal court while the petition was pending at TCEQ

9. Updates From Last Year SER Petitions: Aqua WSC federal lawsuit alleges that: Texas Water Code § 13.254(a-6) unconstitutionally attempts to preempt 7 U.S.C. § 1926 in violation of the Supremacy Clause of the Constitution The actions of TCEQ constitute an attempt to deprive Aqua WSC of its federal rights under 7 U.S.C. § 1926(b)

10. Updates From Last Year SER Petitions: Aqua WSC Federal Court lawsuit 7 U.S.C. § 1926(b) – The service provided or made available through any such association shall not be curtailed or limited by inclusion of the area served by such association within the boundaries of any municipal corporation or other public body ….

11. Updates From Last Year SER Petitions: Aqua WSC federal lawsuit Aqua, ACC, and Elgin reached settlement over who will serve the 98 acres Lawsuit continues over the 1926(b) issue

12. Updates From Last Year SER Petitions: Aqua WSC state court lawsuit No injunction requested in federal court case, so TCEQ grated petition within 60 day deadline

13. Updates From Last Year SER Petitions: Aqua WSC state court lawsuit Similar claims of preemption and unconstitutionality as in federal case

14. Updates From Last Year SER Petitions: Tri-Community WSC state court lawsuit Landowner applied for release of property CCN holder did not file a response TCEQ approved petition on 11/9/11

15. Updates From Last Year SER Petitions: Tri-Community WSC state court lawsuit After approval, CCN holder claimed that landowner was receiving service on part of released property

16. Updates From Last Year SER Petitions: Tri-Community WSC state court lawsuit All parties agreed that CCN was providing service, and the judge issued Agreed Order reversing the ED’s approval and remanding the matter back to TCEQ Landowners filed new petition with revised map

17. Updates From Last Year SER Petitions: Crystal WSC state court lawsuit WSC alleges that TCEQ erred in approving petition because it was providing service to the property as defined by TWC §13.002(21)

18. Updates From Last Year Repeal of Fees for rate, CCN, and STM applications by TCEQ Sunset Bill. No fees for these applications

19. Updates From Last Year Changes to requirements for obtaining a CCN within a city’s corporate limits or ETJ: No applications filed that invoked new requirements

20. Updates From Last Year Rulemaking Updates: 6 rule projects required for utility related legislative implementation: SB 313 and SB 660 - New requirements for creating GCDs and for appeals of DFCs. Adopted by Commission on 7/25/12

21. Updates From Last Year Rulemaking updates: SB 2694, SB 1361, and HB 3002 – deletes the application fees for Rate, CCN, and STM applications, raises the audit exemption amount for districts from 100,000 to 250,000, gives cities and districts an extra 30 days to provide notice of a rate increase, allows for e-mailing of notices in certain situations. Proposed on 2/08/12. Adoption set for 8/08/12.

22. Updates From Last Year Rulemaking updates: HB 805 – added Fort Bend County to the counties in which “affected utilities” are required to file Emergency Preparedness Plans. Proposed at the 5/30/12 agenda. Set for adoption on 10/17/12.

23. Updates From Last Year Rulemaking updates: SB 181 and SB 660 – requires TCEQ and TWDB to develop a uniform methodology for calculating water use for developing water conservation plans and preparing reports. Also requires the development of a data collection and reporting system for cities and water systems with over 3300 connections. Proposed on 6/27/12. Adoption set for 11/14/12.

24. Updates From Last Year Rulemaking updates: HB 3372, HB 3391, and SB 1073 – requires TCEQ and DSHS to develop rules regarding rainwater harvesting systems connected to public drinking water systems. Proposal set for 8/22/12 agenda. Adoption set for January 2013.

25. Updates From Last Year Rulemaking updates: SB’s 18, 512, 573, 914, 1234, SJR 28, HB’s 679, and 1901 - Limits on eminent domain authority, qualifications for board of a FWSD. SB 573 – SERs, obtaining a CCN within a city’s corporate limits or ETJ, opting out of a city’s CCN at the time of application, revoking a CCN, changes to the old expedited release process under 13.254(a-1). Proposal set for 10/17/12. Adoption set for March of 2013.

26. Utility Cases Overview 36 Current Utility Cases at SOAH: 14 rate cases 22 CCN cases

27. Utility Cases Overview Total number of Rate and CCN preliminary hearings at SOAH: FY ‘12 - 38 (through 7/31/12) FY ‘11 - 41 FY ‘10 - 50 FY ‘09 - 81

28. Current Cases Karnes City Petition: Karnes City filed application in 1993 under TWC § 13.255 to decertify 60 acres within the CCN of the El Oso WSC Parties reached a settlement and the city askedthat the application be dismissed with prejudice in 1994 2008 – City again files application under 13.255 to decertify the same 60 acre tract

29. Current Cases Karnes City case continued: El Oso challenged jurisdiction based on 1994 dismissal with prejudice After briefing and oral argument, ALJ issues PFD sustaining the WSC’s challenge to jurisdiction

30. Current Cases Karnes City case continued: Commissioners found that TCEQ had jurisdiction based on “materially changed circumstances” and remanded the case back to SOAH for hearing

31. Current Cases Karnes City case continued: WSC obtained federal loan and filed motion to dismiss SOAH case based on federal debt protection under 7 U.S.C. § 1926(b)

32. Current Cases Karnes City case continued: WSC also filed suit in federal court seeking injunctive and declaratory relief, liquidated damages based on breach of 1994 settlement agreement, and attorney’s fees

33. Current Cases Karnes City case continued: Parties agreed to abate the SOAH proceeding while the federal case progressed City and WSC filed Motions for Summary Judgment

34. Current Cases Karnes City case continued: Federal Magistrate granted the WSC’s Motion for Partial Summary Judgment, finding that: • El Osoqualified for debt protection • City had encroached on WSC’s CCN • Timing of federal debt didn’t matter

35. Current Cases Karnes City case continued: Federal Magistrate found • City’s argument that it would assume a pro-rata share of the federal debt was unpersuasive • “skimming the cream” –would adversely affect remaining customers

36. Current Cases Karnes City case continued: City is enjoined from encroaching on WSC’s service area as long as federal debt protection is in place WSC also awarded $50K for liquidated damages and attorney’s fees

37. Current Cases Karnes City case continued: City withdrew application without prejudice ALJ dismissed the case

38. Current Cases Canyon Lake Water Supply case Rate increase filed by Canyon Lake Water Supply Company in 2010 Former Water Supply Corporation purchased by an IOU

39. Current Cases Evidentiary Hearing held March 2012 Main issues: • Original cost of assets purchased by the IOU • How to handle contributed capital • Rate of return

40. Current Cases Canyon Lake case Main issues continued: • Trending vs. booked costs • Negative acquisition adjustment • Rate case expenses

41. Other Hot Issues 83rd Legislative Session • Transfer of rate and CCN programs back to PUC • Changes to rate making process

42. Questions? Todd.Galiga@tceq.texas.gov (512) 239-3578