Joint Meeting City of Conroe / SJRA February 16, 2010

Our presentation today is in four parts:  Who is SJRA?  What is the GRP plan?  What is the GRP contract and why?  How did things get to this point?

SJRA Board Members  R. Gary Montgomery, President  Joseph V. Turner, Vice-President  Lloyd B. Tisdale, Secretary  Mary L. Rummell, Treasurer  David Kleimann, Member  John H. Stibbs, Member  Joseph Stunja, Member

SJRA Boundary Montgomery Fort Bend Waller Grimes Walker San Jacinto Liberty

The SJRA has been in business developing water supplies for 73 years.

1945 Authority acquired portions of a old WPA Canal System serving ship channel industries and water rights in the San Jacinto River. Authority acquired additional water rights in Lake Houston over time Authority began construction of Lake Conroe with a 1/3-2/3 partnership with the City of Houston and the Texas Water Development Board Lake Conroe was completed and filled Authority undertook responsibility for owner and operating wholesale water and wastewater treatment operations for serving the Woodlands Authority began acquisition of water rights in the Trinity River at a cost of $18 million to substitute for San Jacinto River water in serving our ship channel customers and to free up water in Lake Conroe for local Montgomery County use.

Conroe Courier

2001 Authority purchased additional Trinity River water rights at a cost of nearly $8 million Authority began negotiations with the City of Houston to acquire the right to use Houston’s water in Lake Conroe. Negotiations were protracted and made difficult by competition for that water from interests in Harris County. March, 2009 Authority entered into a Memorandum of Understanding with the City of Houston to purchase water from Houston in Lake Conroe and to enable the Authority to timely complete the countywide Water Resources Assessment Plan on file with the LSGCD. September, 2009 At the urging and with support of elected leadership in Montgomery County, including this City Council, the Authority completed the Houston contract.

64,000 afpy pumpage goal Groundwater reduction to no more than 70% of 2009 permitted amount by January 1, 2016 Applicable to all permittees > 10 mgy (LVGUs) Applies countywide LVGUs must submit a Declaration of Intent (DOI) and a groundwater reduction plan (GRP) DOI – June 1, 2010 GRP – January 1, 2011 Lone Star GCD Requirements

The SJRA’s plan is best because:  It makes provision for the whole County and it treats all LVGUs equally, without distinction, advantage or disadvantage based on size, type, financial ability, location or proximity to Lake Conroe or water pipelines

The SJRA’s plan is fastest because:  it is the only plan that can achieve timely compliance with the Lone Star rules without risking a water shortage in some or all of the County; without delaying the Lone Star rules further and risking further, permanent damage to the groundwater aquifers; and without incurring millions of dollars of additional costs as a result of delay.

The SJRA’s plan is cheapest because:  it is based on the lowest cost of water supply available and a non-profit operation, and it minimizes construction, operation and maintenance, administrative and financing costs.

The SJRA has studied numerous alternatives:  Water sources  Plant locations  Implementation structures and organizations  Financing mechanisms  Delivery points and pipeline routes  Preliminary engineering and cost estimates

Differences from Harris County:  City of Houston unwilling to deliver treated water to end users  Conversion driven by land subsidence  Conversion required in specific geographic areas at different times

SJRA Offers a Turnkey Solution:  Necessary organizational structure  Proven record of performance and impartiality  Planning, technical and financial resources  Eligibility for state and federal financial assistance  Able to leverage over-conversion concept  Able to minimize distribution lines  Centrally-located raw water supply  Centrally-located treatment

SJRA Offers a Turnkey Solution:  Eliminates geographical or political influences and unnecessary costs of additional bureaucracies  Maximizes advantage of location of Lake Conroe  Distributes surface water only where needed  Achieves lowest unit cost  Coordinates compliance with LSGCD rules

June, 2001 LSGCD was created by local legislation as the groundwater regulatory authority for all of Montgomery County. November, 2001 Montgomery County voters confirm and approve creation of LSGCD. June, 2004 LSGCD completes nearly 4 years of preliminary studies and begins preparation of its District Regulatory Plan and related rules. December, 2006 LSGCD adopts its Phase I rules establishing January 1, 2015 as the date for 30% reduction of groundwater usage countywide. January-June, 2007 LSGCD proposed legislation to acquire power to impose “disincentive” fees to implement and enforce compliance with its rules. SJRA supported the LSGCD legislation and proposed a uniform countywide groundwater reduction plan supported by “pumpage fees” to be collected and imposed by LSGCD. Legislation fails.

February, 2008 LSGCD adopts Phase II-A rules requiring a Water Resources Assessment Plan (WRAP) by all LVGUs by March 2, 2009, to demonstrate how compliance will be achieve by January 1, March-June, 2008 SJRA contracts with 201 of 203 LVGUs in the County, including the City of Conroe, to prepare and file a countywide WRAP. June 2008-March 2009 SJRA prepares countywide WRAP using both SJRA and Houston water in Lake Conroe as a source and including uniform pumpage fees and overconversion of densely populated areas of the County. January-March, 2009 SJRA prepares legislation in consultation with local leaders, including Judge Sadler and Mayor Melder, to acquire legal authority to impose pumpage fees in support of a countywide GRP.

March, 2009 SJRA concludes Memorandum of Understanding with the City of Houston to purchase all of Houston’s water in Lake Conroe for use by WRAP and GRP participants. SJRA timely files completed WRAP with LSGCD SJRA gains public support of City of Conroe and Mayor Melder for proposed legislation and plan. June, 2009 SJRA legislation fails to pass. SJRA announces it will go forward with GRP contracts to implement the GRP plan. July, 2009 LSGCD proposes its Phase II-B (final) groundwater reduction rules with the same deadlines and reduction requirements as Phase II- A. August 17, 2009 Mayor expresses support for Judge Sadler’s Water Summit. September 28, 2009 SJRA plan is presented at the Water Summit and is broadly supported.

Contract for Groundwater Reduction Planning, Alternative Water Supply, and Related Goods and Services

Key elements of GRP Contract:  Provides all essential tools to implement a countywide compliance solution  Reserves Lake Conroe for GRP participants  Commits SJRA to uniform raw water rate  Commits SJRA to make Houston water available at actual cost  Commits SJRA to non-profit operation of GRP  Commits SJRA to lowest rates consistent with good management practices

Key elements of GRP Contract:  Commits SJRA to additional open meetings, open records, and audit requirements  Commits SJRA to additional budget and rate reviews  Commits SJRA to periodic expert review of raw water rates  Establishes an Advisory Committee  Commits SJRA Woodlands Division to same costs and same requirements as other LVGUs

October 16, 2009 SJRA water purchase contract with the City of Houston is finally executed and delivered. November 2, 2009 SJRA delivers confidential draft of GRP contract to Conroe November 10, 2009 LSGCD finalizes Phase II-B rules and extends compliance deadline to January 1, 2016, with a required Declaration of Intent (DOI) on how each LVGU will achieve compliance by June 1, November 12, 2009 SJRA schedules and announces GRP meeting with all interested parties at the Lone Star Convention Center on January 14, 2010, to present and discuss the GRP contract.

November 23, 2009 First meeting of Conroe and SJRA representatives on the GRP contract. Mayor Melder expresses his concern about “representation” of Conroe in the decision-making process and asks the Authority whether it will sell raw water to the City of Conroe if it does not participate in the GRP plan. SJRA answers that it cannot do so and remain consistent with its commitment to all other GRP participants to reserve all available water in Lake Conroe for their use and advises the City that is has similarly declined to do so with both The Woodlands and Walden MUDs. December 11, 2009 SJRA receives 7 pages of detailed comments on the GRP contract from the City’s counsel. December 15-17, 2009 Conroe counsel and SJRA counsel discuss GRP contract and Conroe comments for three full days. December 21, 2009 SJRA counsel delivers revised GRP contract to Conroe, together with a detailed explanation of each revision and each response to Conroe’s initial comments and a request for suggested language for compromise on issues not completely accepted by SJRA.

December 23, 2009 GRP contract and summaries distributed to all LVGUs in same form as revised Conroe draft. December 23-February 5, 2010 No further comments, suggested language changes or communications from Conroe’s representatives. January 14, 2010 SRJA holds GRP meeting to present and discuss GRP contract and announces comments will be received on the contract until March 1, Conroe representatives offer no proposed changes but make public statements that Conroe feels “threatened” by SJRA’s response to his direct question, that the SJRA Board of Directors is not sufficiently “representative” or “accountable” and that a regional water authority is needed. January 26, 2010 SJRA request a joint meeting between its Board of Directors and the City Council of Conroe to reopen communications on the GRP Contract.

January 28, 2010 Conroe City Council agrees to a 30- day postponement of its delay request to the LSGCD. February 4, 2010 SJRA receives a letter of inquiry from Senator Robert Nichols. February 5, 2010 SJRA receives Conroe counsel’s letter repeating Conroe’s concerns and making an Open Records Act request for documents from SJRA, but making no suggested changes. February 9, 2010 SJRA delivers response to Senator Nichols and all LVGUs. February 10, 2010 SJRA receives Mayor Melder’s letter asking responses to a series of questions answered in SJRA’s response to Senator Nichols and proposing an “administrative agency.”

Contract for Groundwater Reduction Planning, Alternative Water Supply, and Related Goods and Services

Questions and Answers