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, TX 78704
512-326-2556
512-326-2586 (fax)
email: marysahs@bga.com
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
1
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
2
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).
See also
§§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).
3
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. See also § 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
4
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.
5
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 AmericanStatesman, 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.
6