Below is the HillCo client report from the June 26 House Natural Resources Committee hearing.

The committee met to hear agency updates and to consider the following interim charge:
Monitor the implementation of HB 4 (83R) and SJR 1 (83R) and the progress of the Texas Water Development Board and other entities in implementing this legislation to provide a stable, long-term funding source for the State Water Plan.
L’Oreal Stepney, Texas Commission on Environmental Quality (TCEQ)

  • In response to the Sunset bill, all basins without a watermaster program are being evaluated; currently looking at Sabine and Neches river basins and should have the review completed by the end of August; next year will study the Canadian and Red river basins followed by the Sulphur and Cypress river basins
  • Rep. Jim Keffer asked about opposition in the upper basin from Possum Kingdom down; will that prevent the watermaster from being successful because it is not a full basin authority
    • Don’t believe it will; did not really see a threat in the upper basin, it is either really dry or flooding; if there is an issue the watermaster can still work with field office staff in the upper basin
  • For the Rio Grande, there was recently an issue where notice was given of a spill in Rio Salado on the Mexican side; Laredo office was notified by text message, a substance was released into the water and would reach the Rio Grande in four days; there was no information on type of substance or quantity; tried to find more information but it wasn’t available; notified public water systems that divert directly from Falcon and downstream diverters; staff made observations and sent samples to a lab to get feedback
  • Rep. Eddie Lucio noted this was a big deal in South Texas; a majority of water that people use comes from the river; believes there are no monitoring systems in Mexico that can alert us that contaminant has been placed in the river
    • There is a concern that that type of system does not exist
  • Lucio noted a contingency plan should be implemented in case a pollutant requires that water be taken from another source
  • Have been working on the Lower Colorado River Authority (LCRA) water management plan review; they have 799,000 acre feet in the lakes; LCRA needs a much better drought management plan which needs to respond to changing conditions
    • Towards the fall, should be taking public comment on the updated draft of the water management plan
  • Texas is very close to being in the worst drought on record; the drought of the 1950s still holds the record
  • Brazos River Authority has a pending application and has developed a water management plan including TCEQ updates to environmental flow standards
  • Doing a rulemaking to incorporate HB 3233 (83R) relating to interbasin transfers
    • Plan to go to the commission in August to adopt those rules
  • Rep. Doug Miller asked if there is an ongoing conversation regarding bed and banks permitting; recent GBRA declaratory judgment case; judge ruled beyond what had been the standard for those cases; seeing more and more municipalities wanting to retain their effluent; if more and more communities are trying to keep their return flows there will be a problem with basin estuaries and for all people downstream
    • There are more communities trying to reuse their wastewater which therefore would not be flowing downstream
  • Miller noted the highland lakes have a prohibition on that; is that a TCEQ (Texas Commission on Environmental Quality) rule
    • It is a TCEQ rule which has been in place since the 1980s
    • Kellye Rila, with TCEQ replied that there are several ways TCEQ looks at protecting existing water rights and also the environment in the bed and banks process; when a water availability analysis is done, model run does not include return flows; always assume water is consumed at 100%  for surface water; in the case of groundwater, the discharger retains ownership
  • Miller asked if there are any conflicts with overlapping authority between state agencies that may inhibit the way TCEQ does their job; example: Railroad Commission and TCEQ with water quality
    • Sometimes there are jurisdictional questions; generally TCEQ works with the other agency to determine who has authority
  • Miller noted thee is at least one lawsuit where a groundwater conservation district is trying to usurp authority from the TCEQ; the committee needs to be informed when there are problems like that
  • Rep. Lyle Larson asked about excess flows in river basins; has asked Texas Water Development Board (TWDB) to calculate the excess flows that may have been lost in the gulf since recent rains; they calculated 125,000 acre feet of water; many other states capture excess flows and do not allow it to go to the coast
    • In the Colorado river, the LCRA has an authorization to take excess flows in the lower basin; generally people will ask for an excess flows permit to take high flows; they submit a number they think they are able to take and if they have a way to take it and a place to store it they can get a permit for off-channel impoundment
  • Larson noted those situations are driving aquifer storage and recovery (ASR) in other states
  • Larson noted the biggest issue in desalination is what to do with the concentrate;  there is a rule that doesn’t allow the concentrate to be put in type 2 disposal wells; there is no logic in that considering the type of waste already being put in those wells; need to remove that impediment
    • Charles McGuire, Director of Radioactive Materials Division replied that there have been a lot of questions about Class 2 wells; the fundamental problem is that program is at the federal level; in Texas the RRC has primacy from EPA for Class 2 wells and that primacy is exclusive and limited to oil and gas activities; if concentrate comes from something other than oil and gas exploration there is no federal authorization to put it into Class 2 wells
  • Larson asked how the process can be fixed
    • Would have to work with federal partners; would also take state legislative action because federal regulations are reflected in state law
  • Lucio noted he has heard that the concentrate could be used by the oil and gas industry as a lubricant; is there potential in that
    • That is an emerging technology; will get more information for the committee; people on the drinking water side will have a better idea

Brian Lloyd, Executive Director, Public Utility Commission (PUC)

  • Texas has electric utilities in three separate power grids
  • Water is used for cooling in electrical generation
  • Power plants use only about 4% of current total water demand and the water they use is generally recycled quite frequently
  • New plants being developed many times are natural gas plants which use less water than coal and nuclear
    • Can be cooled using waste water, brackish water or hybrid cooling systems which use very little water
  • Last year 10% of the energy used on the ERCOT (Electric Reliability Council of Texas) grid was wind energy which is growing and uses very little water
  • Have about 500 MW of hydroelectric generation; this is decreasing and varies a lot; ERCOT can call on them in peak hours to release water and generate electricity
  • 2011 showed us how the confluence of hot, dry weather can cause problems with generation
  • Transmission can also have problems during drought due to collection of dust on conductors and transmission lines which then need to be washed off
  • 2011 helped to form best practices in this space
  • Have proposed amendments to rules to include drought management provisions
  • SB 662 (83R) added PUC to the Drought Preparedness Council; has given great visibility to what other agencies do in drought situations

Warren Lasher, ERCOT

  • ERCOT is its own separate power grid and has four responsibilities:
    • Reliability
    • Open access
    • Facilitation of resale markets
    • Facilitation of wholesale markets
  • Electricity is generated at almost the same rate it is consumed in the state; there is almost no storage
    • The state has to have sufficient generation at all times to serve the load
  • Peak demand estimate is 68,096 MW for 2014
  • This summer, several power plants will be coming online; several combined-cycle plants and a few smaller plants in the Houston region; all are natural gas fired
  • The expectation is that this summer will not be nearly as severe as recent years; precipitation is not expected to be greatly higher
  • ERCOT is participating on the Drought Preparedness Council as well
  • Larson asked if there was impact on generation because of limited water in 2011
    • Yes because some intake structures were not sufficient to take in enough water; a lot of that has been resolved
  • Larson asked if there is a way to know that cooling ponds are insufficiently stocked in order to divert excess flows to those ponds when the need arises
    • Not sure if they are taking advantage of those opportunities with excess flows

Cindy Loeffler, Texas Parks and Wildlife Department (TPWD)

  • Healthy ecosystems depend on careful resource management
  • Integrated watershed base planning is key to the future health of Texas ecosystems
  • Water conservation is the best management strategy the state has; studies show conservation is expected to meet 24% of the future water needs of the state
  • Have been developing tools and providing input regarding environmental flows
  • Now that TCEQ has adopted standards for environmental flows under SB 3 (83R) the focus is being shifted to adaptive management processes; contracts are being issued to get studies up and running
  • Special provisions are added to water rights regarding basin estuaries; TPWD makes recommendations for water rights to be suspended through TCEQ if they feel conditions call for increased or decreased flow
  • LCRA withdrew their request for emergency suspension of freshwater inflows because of rainfall events last fall; they may make another request this year if lake levels do not recover

Tim Birdsong, TPWD

  • Discussed non-native invasive aquatic species and their impact to Texas ecosystems

Carlos Rubenstein, Chairman, TWDB

  • Finalizing the prioritized list of regional water projects is the last main piece that has yet to be completed on the road to funding water projects
  • Working to facilitate the environmental review processes within the agency; trying to prevent overkill
  • Working on an online application process
  • Established a new position for rural Texas ombudsman; Doug Shaw has been selected for the position

Todd Chenowith, TWDB

  • This morning TWDB approved publication of the HB 4 (83R) rules
  • Stakeholder suggestions were a significant part of rule development
  • The rule places the SWIFT/SWIRFT program within a new chapter of agency rules
  • Proposed rule will keep structure and terms of board loans to political subdivisions to a minimum; this will help actively manage SWIFT funds while protecting the corpus
  • Definitions for “agricultural use”, “water conservation” and “rural” were an important part of the proposal
    • Board is specifically asking for public comment on how to deal with definition of “water conservation” and whether it should deal with reuse
    • Board added language to ask for comments and suggestions for actions the board can take to make sure the set asides are met for rural, agricultural use and water conservation
  • Proposed rule sets out how prioritization will be handled; attempts to achieve a balance between points that urban and rural projects can receive; giving lots of points for areas with high populations
  • Should be published in Texas Register on July 11; official comment period will begin on that date; comment period will end September 1

Anne Burger Entrekin, Financial Advisor to the TWDB, First Southwest

  • Working very closely with TWDB to develop a program that will achieve the goals of HB 4
  • Program will take significant active management
  • By allowing 30 year loans a significant impact on the capacity is created
  • Increasing the subsidy allowable from around 30% to 50% will have a capacity impact as well
  • Will be legging-in funds into investments to mitigate risk
  • Rubenstein noted TWDB will be able to fund $800 million worth of projects every year for the first ten years
  • Miller asked if enough money was appropriated to properly fund the agency; lots of changes are going on
    • Will be raising some issues in the appropriations request for next session; additional FTEs were authorized to help with implementation of HB 4 as well as to increase the work done on the science side
  • Rep. Tracy King asked about interest rate subsidy
    • The board issues bonds which charge interest; a portion of that interest is subsidized by the state and the rest of the interest is charged down the line to the underlying borrowers

Paul Ballard, CFO, Texas Treasury Safekeeping Trust Fund

  • The trust company has a conservative bias toward investment
  • SWIFT was established as its own account on November 22
  • Phase 1 investment strategy was to build a very liquid low volatility investment strategy
  • Because markets can be volatile, legging-in is a good strategy; investing $250 million each month; will be fully deployed by the fourth quarter of this year
  • Will be fine tuning the investment model as a better idea of need is established
  • The fund balance has grown by about $18 million since the fund was established
  • $500 million has been deployed in long term investment strategies at this point and $600 million is still in liquid strategies