The Role of

Groundwater Conservation Districts

In Sales and Exports

Presented at

Texas Groundwater 2004:

Towards Sustainability

November 18 – 19, 2004

Presented by

Mary K. Sahs

Sahs & Associates, P.C.

1700 Collier Street

Austin, TX78704

512-326-2556

512-326-2586 (fax)

email:

Special thanks goes to

Elizabeth Ferrer

for her assistance in interviewing

Groundwater Conservation District Managers

for use in this paper.

This information is being presented as a service

to those attending this seminar. While

the information in this paper is about legal issues,

it is not legal advice.

The Role of

Groundwater Conservation Districts

In Sales and Exports

Groundwater conservation districts (GCDs) cover approximately 60% of Texas and 90% of groundwater being produced in the State, according to the Texas Water Development Board. These Districts have the power to regulate the use and management of groundwater resources within their territorial limits and may do this by restricting the long-standing “rule of capture.” Because most usable groundwater resources in the State are located within a GCD and GCDs have wide-reaching regulatory powers, these Districts play an important role in groundwater sales and exports.

In the areas of the State that are not covered by GCDs, the rule of capture applies to production of groundwater and there is no regulation of sales and exports. There is pressure on the legislature, however, to establish GCDs in all areas of the State containing major and minor aquifers. Additionally, for those wanting to sell their groundwater and for those wanting to purchase that water, GCDs can provide a level of assurance that there will be a firm supply of groundwater. For these reasons, the power of GCDs to regulate groundwater sales and exports should be of interest whether the project will be located within or outside a GCD.

Two types of restrictions on the rule of capture impact groundwater sales and leases: export regulations and production regulations. Although not all groundwater sales and leases involve the export of groundwater out of district, the two types of regulations are intertwined. Jace Houston, a speaker on this panel, will address the production regulations. This paper will discuss regulation of the export of groundwater out of district.

Most GCDs are special law districts. That is, they are created by specific legislation that establishes their powers and duties. This is called their “enabling legislation” or “enabling Act.” Each enabling Act is unique; some are very detailed and address a wide array of powers and duties, while others are quite basic. Whenever a question arises about a particular GCD’s powers or duties, you should consult its enabling Act first.

With regard to GCDs’ powers and duties, Chapter 36 of the Texas Water Code fills in the gaps. Thus, if you look at the enabling Act and it is silent as to a particular power or duty, you would look at Chapter 36. This paper does not attempt to discuss any of the many special enabling Acts; instead, this discussion is based on Chapter 36 and a telephone survey of GCDs regarding their rules.

Regulation of the Export of Groundwater

Most groundwater marketing involves purchasing or leasing groundwater in a rural area of the state and transporting it to an urban center. Ordinarily this means the groundwater will be exported out of the area in which it is produced. If the production well is located in a GCD, producing such water to transport to users outside the District boundaries is called “export,” “transport,” or “transfer” of groundwater out of the District.

Texas Water Code § 36.122 is the primary statutory provision addressing the powers and duties of GCDs related to regulation of export of groundwater out of a District. A copy of § 36.122 is attached to this paper as Attachment A. While § 36.122 is fairly short, a quick reading of the section will show that it is anything but crystal clear.

As you know, legislation generally involves compromise. Various constituents with various goals seek to reach common ground. Individuals hoping to market groundwater needed several things from the legislature, which is reflected in the current version of §36.122. (1) They wanted to be sure that GCDs could not prohibit the export of groundwater outside the District. (2) They wanted to be sure that when a GCD issued them a production permit, they would be treated fairly. (3) They wanted to be sure that the terms of such a permit would be sufficiently long to enable them to market the water. The term needed to be long enough to give the ultimate purchaser some level of comfort about the reliability of the supply and long enough to allow a public entity purchaser to issue bonds to pay for the project. (4) Additionally, while they were willing to pay export fees, they wanted to be sure those fees would be reasonable. What follows is a summary of how § 36.122 addresses the four concerns listed above.

Let’s begin with the basics: A district may not “expressly prohibit” the export of groundwater. § 36.122(o). Seealso §§36.122(g) and (m) and 36.121. (Note: The Edwards Aquifer District is allowed to prohibit export under its enabling Act.)

Section 36.122 requires GCDs to be fair to applicants seeking a production permit for water to be exported. The District may limit production by transporters if certain conditions warrant it. The District may consider the following factors when deciding whether to limit production: (a) the availability of water in the District and in the receiving area for the term of the permit; (b) the projected effect of the production on the aquifer and groundwater users within the District; and (c) the approved regional water plan and certified district management plan. § 36.122 (f). The District, however, shall not impose more restrictive permit conditions on transporters than the District imposes on existing in-District users unless the more restrictive limits apply to all new permits, are related to the district management plan, and are reasonably necessary to protect existing use. § 36.122(c) and (g). Any application fee and the application process must be the same as for production permits for in-District use. § 36.122(d). Finally, “In applying this section [§ 36.122], a District must be fair, impartial, and nondiscriminatory.” § 36.122(q).

What about the term or length of a production permit for transfer of groundwater outside the District? A permit under § 36.122 must specify the period for which the water may be transferred. §36.122(h)(2). The period must be at least three years if construction of a conveyance system has not been initiated prior to issuance of the permit and must be at least 30 years if construction has been initiated. § 36.122(i). If construction begins during the initial 3-year term of the permit, the term must be extended to 30 years. §36.122(j).

These lengthy terms are tempered, however, by § 36.122(k), which allows a District to periodically review the amount of water authorized by the transporter’s permit and to limit it if necessary due to conditions in the District. In order to limit the production, the District must consider the factors mentioned in § 36.122(f) (summarized above) under the same conditions – if they limit the transporter’s production, they must likewise limit the production for all permits. Another aspect of this permissible periodic review is that it cannot be conducted any more frequently for transporters than it is for in-District permits. Finally, the provision requires the District to “consider the permit in the same manner it would consider any other permit in the district.” § 36.122(k).

The fourth major consideration addressed by § 36.122 is the export fee. Seealso § 36.205(g). Under §36.122(d), a District may impose a reasonable fee for processing the application and that fee cannot exceed the fee charged to process applications for production permits for in-District use. The District may charge a reasonable fee or surcharge as an export fee. §36.122(e). The statute defines what is reasonable: (1) a negotiated fee; (2) a rate not to exceed the equivalent of the District’s tax rate per $100 valuation to be charged per 1,000 gallons; (3) 2.5 cents per 1,000 gallons if the District’s tax rate is less than 2.5 cents; or (3) for a fee-based district, a 50% export surcharge in addition to the fee charged for the production permit. § 36.122(e). Subsection (e) does not apply to a District that is already collecting an export fee or surcharge on March 1, 2001. §36.122(p). Interestingly, even wells that are exempt from permitting and regulation under § 36.117 must pay applicable production and export fees under §§ 36.122 and 36.205 if the groundwater produced from those wells is transported outside the District. § 36.117(k).

One developing issue on export fees under § 36.122 is the timing of when the fees are assessed and collected. The section refers to a fee rate for “water transferred out of the district.” §§36.122(e)(2) and (3). In practice, there is often a significant amount of time between when a District issues a permit authorizing production for transfer out of the District and the time when the production begins. In certain cases, there could also be a lag between when the production begins and when the transfer begins. Often a District’s management plan restricts future permits based on current permitted amounts. Thus, if the permittee does not have to pay the fee until the permitted water is transferred out of the District, he has “reserved” the water in the interim to the detriment of others in the District without having to pay for that benefit.

In summary, § 36.122 is fairly complicated and some of the provisions overlap and seem to be duplicative, while others appear inconsistent. The GCDs’ use and interpretation of § 36.122 complicates the issue further.

In March of this year, my office did a telephone survey of all of the GCDs, asking how their rules address export of groundwater. The survey was updated in August. Attachment B summarizes the results. At the time of the survey, we found the following:

  • More than 29 Districts do not require permits for export of water out of the District. Instead, anyone who produces water from within the District must comply with the same set of rules related to permitting, production rates, spacing, etc.
  • At least eight of the Districts that do not require specific permits for export of water out of the District do assess an additional export fee that differs from what is charged to permittees using the water in-District.
  • More than 35 Districts require a transport, export, or transfer permit if an applicant intends to produce water in-District for use outside the District.
  • At least 10 of the Districts that require an export permit, do not follow § 36.122 regarding the term (duration) of the permit.
  • At least 5 of the Districts that require an export permit, do not follow § 36.122 regarding export fees. Note that some enabling Acts specify export fees that differ from those of § 36.122.

What is the significance of all of this? First, rules regarding the export of groundwater vary widely. Second, Districts do not agree on the application of § 36.122. Some appear to consider the requirements of that section to be optional. Some apply some parts of § 36.122, but do not apply all of them. Others believe that when it comes to a District’s authority to regulate the export of groundwater for use outside the District, § 36.122 controls.

The Law is in Flux

In ending, let me caution that GCD regulation of export of groundwater is in flux. Many of the Districts interviewed are in the process of amending their rules to address the export issue. Additionally, Lt. Gov. David Dewhurst named 11 senators to a Select Committee on Water Policy “for two main reasons: aggressive water marketing efforts by private businesses in parts of the state, and ‘a strong interest among a number of our senators to look at moving away from’ Texas’ nearly century-old rule of capture, a cornerstone of the state’s commitment to private property rights.” Austin American-Statesman, November 13, 2004, A5. He also established a subcommittee of this group: “Subcommittee on the Lease of State Water Rights” to address the immediate concerns over the General Land Office leasing ventures. The interim charges for these groups are found at Attachment C and D.

In recent weeks commenters across the State have expressed their ideas about changes to current law that they believe will improve the legal framework for marketing groundwater. One report that may be of interest is, “A Powerful Thirst: Water Marketing in Texas,” newly published by Environmental Defense. An excerpt containing the “Summary of Recommendations” regarding groundwater markets is found in Attachment E.

In closing, let me say that this coming legislative session promises to be interesting for those following groundwater marketing issues.

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