1. CCN Update Panel The CCN Holder’s Perspective on Compensation
Leonard H. Dougal
Jackson Walker L.L.P.
• (512)
CCN Update Panel The CCN Holder’s Perspective on Compensation
TRWA/TWCA Water Law Seminar
January 11, 2017 Austin, Texas

2. Evolution of CCN Policy
SB 1
“Promote Regional Water Systems”
HB 2876
Landowner Decert “Expedited Release” (a-1)
HB 1600
CCN & Rates Transfer to PUC
SB 573
Landowner Decert “Streamlined Expedited Release”
(a-5)
TCEQ Regionalization Policy
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3. CCN Compensation After Decertification3

4. Compensation Obligation TWC 13.254(d)
A retail public utility may not in any way render retail water or sewer service directly or indirectly to the public in an area that has been decertified under this section without providing compensation for any property that the utility commission determines is rendered useless or valueless to the decertified retail public utility as a result of the decertification. 4

5. Compensation Process/Timing TWC 13.254(e)
The determination of the monetary amount of compensation, if any, shall be determined at the time another retail public utility seeks to provide service in the previously decertified area and before service is actually provided. The utility commission shall ensure that the monetary amount of compensation is determined not later than the 90th calendar day after the date on which a retail public utility notifies the utility commission of its intent to provide service to the decertified area. 5

6. Statutory Basis for CCN Compensation After Decertification
13.254(g) Factors Apply to:
(a-1) Expedited Release (50+ Acres)
(a-5) Streamlined Exp. Release (25+ Acres)
13.255(g) Factors Appy to:
Area Incorporated or Annexed by City
No Agreement after 180 Days
WSC, SUD, FWSD (IOU w/in City 1.7M) 6

7. TWC 13.254(g) Versus 13.255(g) 13.254 (g) 13.255 (g)
. . . The factors ensuring that the compensation to a retail public utility is just and adequate, shall, at a minimum, include: impact on the amount existing indebtedness of the retail public utility's debt allocable for service to the area in question; and its ability to repay that debt, the value of the service facilities of the retail public utility located within the area in question; , the amount of any expenditures for planning, design, or construction of service facilities outside the incorporated or annexed area that are allocable to service to the area in question; , the amount of the retail public utility's contractual obligations allocable to the area in question; , any demonstrated impairment of service or increase of cost to consumers of the retail public utility remaining after the decertification; single certification, the impact on future revenues lost from existing customers; , necessary and reasonable legal expenses and professional fees; , factors relevant to maintaining the current financial integrity of the retail public utility, and other relevant factors. The utility commission shall adopt rules governing the evaluation of these factors. 7

8. TCEQ Compensation Creedmoor-Maha WSC (1960 Acres)
Appraised Value Creedmoor-Maha $2,157,702 Jona Acquisition, Inc. $ 16,548
TCEQ Order $ 179,392
TCEQ Docket No UCR Order of 8

9. TCEQ Compensation Monarch Utilities (445 Acres)
Appraised Value Monarch Utilities I, LP $2,266,600 E.B Windy Hill(landowner) $ 25,223
TCEQ Order $ 275,512
TCEQ Docket No UCR Order of 9

10. (Old) PUC Compensation Process Mustang SUD (495 Acres)
Appraised Value Mustang SUD $1,850,192 City of Celina $ 181,900
PUC Order* $ 258,081
PUC Docket No Notice of Approval of
*Appeal Pending in Travis County Dist. Ct 10

11. New PUC 2-Phase Compensation Process
Phase 1: Refer SOAH, After Notice of Intent to Serve
ALJ Hearing on “what property has been rendered useless or valueless by the decertification”
Findings in PFD to PUC Commissioners
PUC Commissioners Issue Property Determination
Phase 2: Compensation; Three Appraisers
Unless Agreed Appraiser
“May” Return to SOAH, if contested or fact-intensive
PUC Final Order on Compensation
Appeal to District Court 11

12. Useless or Valueless Proposed PUC Rule 24.113(b)(6) Meaning
“Useless or valueless property -- Property that has been rendered useless or valueless to a former CCN holder by revocation or amendment, including by expedited release or streamlined expedited release, under this section.”
Meaning
Surely not Completely Useless?
If Partial, What Basis to Calculate
Assumptions as to the Water Demand from the Decertified Tract 12

13. Phase 1 Other Issues/Challenges
What is the Date of the “Taking”
Tract Not Receiving Service
Does a Water Facility need to be “dedicated” to serve the decertified tract?
What is Property?
Facilities: Wells, Pipes, Tanks, Pumps
Lost Economic Opportunity? (PUC 45848)
Cost of Obtaining and Maintaining a CCN?
Legal & Professional Fees re: Decertification 13

14. “Just and Adequate” Compensation Factors 13.254(g)
Statutory Factors (Allocable to the Decertified Area)
Debt Allocable to the Area
Value of Facilities in the Area
Amount of Expenditures for Planning, Design and Construction
Contractual Obligations
Impairment/Increased Cost to Remaining Customers
Loss of Future Revenues from Exist. Customers (None)
Legal and Professional Fees
Other Relevant Factors 14

15. Phase 2 Compensation Issues
Will You Even Get to Address the 8 Comp. Factors?
No, if no property is “Useless or Valueless” in Phase 1
Who is Qualified to Make an Appraisal?
Engineer?
Professional Appraiser?
Appeal to District Court
Substantial Evidence 15

16. Policy Concerns Discourages Planning and Investing for Growth
Swiss Cheese CCNs
Stranded Assets
Future Growth, Does it Off-Set Decertification
Increased Costs to Customers
Greater Protections by Federal Debt, 7 USC 1926(b) 16

17. QUESTIONS?
Leonard H. Dougal Jackson Walker L.L.P. 100 Congress Avenue, Suite 1100 Austin, Texas Telephone: (512) 17