Conroe and Magnolia city officials contest San Jacinto River Authority lawsuit

The lawsuit is the latest development in the city’s conflict with the SJRA and Lone Star Groundwater Conservation District over groundwater use regulations. The city also filed a lawsuit against the LSGCD last year contesting its mandate that the county pump no more than 64,000 acre-feet of groundwater per year.

City officials said they believe the LSGCD regulations create a system that benefits the SJRA by forcing the sale of surface water while reducing the amount of groundwater municipalities can pump—a more affordable option, Place 1 Council Member Duane Ham said.

“What people need to understand is that the [LSGCD] is the one that enabled the SJRA to be able to do what they did,” Ham said. “We entered into the contract [with the SJRA] because we have a duty to provide water to our citizens, and Lone Star was telling us that they were going to start fining us.”

SJRA water fee

The SJRA water fee increase that went into effect Sept. 1 only affects residents who receive water services from the 151 entities contractually involved in the SJRA GRP, such as residents of Conroe, Magnolia and The Woodlands.

SJRA General Manager Jace Houston said the fees were increased as a last resort measure to address the drop in demand for water because of heavy rainfall over the last few years. From March through May, actual rainfall totals doubled or tripled expected totals, based on SJRA projections.

The SJRA went through $6 million of its $13 million in reserves in three months to make up the loss in funding as water users have provided less revenue than anticipated. To stop eating into reserve funds, the SJRA increased its fees at the beginning of September by 18 cents per 1,000 gallons—from $2.32 to $2.50 per 1,000 gallons of groundwater and from $2.51 to $2.69 per 1,000 gallons of surface water.

“We can’t go another 12 months eating into reserves, and that is why [a] customer review committee finally said, ‘We have done everything we can, and we have to raise rates,’” Houston said. “Revenue [from water usage] went down, but the costs don’t because we still have to pay debt. We have to operate the plant.”

The SJRA’s plan uses water user fees to repay the cost of the $480 million surface water treatment plant on Lake Conroe as well as the pipeline system that delivers surface water from the lake to surrounding users—projects that were completed in late 2015. According to the SJRA, 100 percent of the water authority’s annual revenue comes from water usage fees, and 60 percent of revenue from the fees go toward debt service to pay off the treatment plant and pipeline system.

The fee is paid to utility providers from residents as a line item on their monthly water bills. The city of Conroe, however, charges an additional 16 cents to resident water bills on top of the SJRA fee—bringing it to $2.85 per 1,000 gallons of water—to pay SJRA for water used by the city.

Combined with the fees residents pay the city of Conroe for water usage—which vary by the amount of water used—the typical household uses about 10,000 gallons per month and pays about $59. The 18 cent increase instituted in September amounts to an additional $1.80 on an average water user’s monthly bill.

The city of Conroe—one of several entities that receive Lake Conroe surface water from the SJRA to comply with groundwater usage regulations—passed a resolution stating it would not pay for the September increase in SJRA fees.

Ham said the council voted in favor of the resolution because Conroe residents continue to pay ever-increasing water rates and fees.

“Our citizens are already being hamstrung enough by these high water bills, and for no reason they just raised it 18 cents because their bond reserves are not high enough,” Ham said.

Legal effects

Following the resolutions passed by Conroe and Magnolia, the SJRA considers the cities to be in breach of the contract they signed when they entered into the GRP in 2010.

Houston said the breach of contract puts the SJRA and its members in danger of defaulting on its bonds. The resolutions also triggered a specific set of steps for notifying the state, including informing the Texas Attorney General and the Texas Water Development Board.

In response, the SJRA filed a lawsuit in a Travis County court to confirm the validity of the GRP’s contracts and SJRA’s ability to enforce them. Houston said if the court confirms the validity of the contract and its fees, then the SJRA could petition a Montgomery County court to force the cities to pay the fees if they continue to withhold payments.

“The whole concept is you can’t have a bunch of governmental entities join together, sign a contract and say they are going to build a large project to benefit everybody, then five years later have one of them say, ‘We disagree. We don’t think that was a good deal for us to enter into after all so we are walking [away from] the contract,’” Houston said.

Conroe City Attorney Marcus Winberry said the city has asked the court to transfer the litigation to Montgomery County. He also claims the city has governmental immunity from being sued on the matter. Houston said the petition was filed in Travis County to accommodate the attorney general’s office, which is a mandatory party in the lawsuit.

“We think [the SJRA is] trying to make a claim against Conroe that [the city] would otherwise be immune from being sued over,” Winberry said.

Bond sale halted

Following the dispute with the SJRA, the attorney general’s office opted to intervene in an $8.4 million bond sale by the city of Conroe.

The bond sale would fund sewer and water line rehabilitation projects, a replacement for one of the city’s groundwater wells and wastewater plant upgrades. The bonded amount would be repaid from revenue generated from the city’s water and sewer rates, Winberry said.

“[The bond sale] has gotten tangled up in the SJRA litigation,” Winberry said. “It is raising a question about whether or not Conroe has set the water and sewer rates at a level that is high enough to pay [the bonds] and also any other governmental charges [such as the SJRA fee].”

Winberry said the attorney general’s office gave the city of Conroe two options to move the bond sale forward: either pay for the SJRA GRP fee increases under protest and continue to negotiate the fee rate, or pay the disputed amount—18 cents per 1,000 gallons of water used—into the registry of the Travis County court.

Even though city officials said they believe they have set water rates high enough to repay the SJRA and the bonds, Winberry said, Conroe City Council did not take action on either option during a special meeting Sept. 26.

The city is now looking for an alternate way to fund the projects.

“It is entirely possible that the litigation [with the SJRA] will be resolved in two or three months­. That would remove a barrier, and we would go back and plan for another regular water and sewer bond sale,” Winberry said. “At this point we will just move forward to try to resolve the litigation with the SJRA.”

The Texas attorney general’s office declined to comment on the bond sale.