A New Wrinkle in Processing Landowner CCN Decertification Petitions?

by David J. Klein and Maris M. Chambers

The one constant in life is change, and recent developments at the Public Utility Commission (“PUC”) regarding petitions by landowners for decertification from a water and/or wastewater certificate of convenience and necessity (“CCN”) call into question whether change is afoot.

CCNs are permits granted by the PUC (and previously, the Texas Commission on Environmental Quality), providing their holders with the exclusive right to provide retail water and/or wastewater service within a specific geographic area. However, CCNs are also subject to decertification. In addition to other means of decertification, Texas Water Code (“TWC”) § 13.2451 entitles a landowner of real property of at least 25 acres, and located within certain enumerated counties, to petition the PUC to have its qualifying real property decertified from the boundaries of a CCN on an expedited, streamlined basis. A key fact issue considered by the PUC in responding to such petitions is whether the landowner is “not receiving water or sewer service” from the CCN holder.

Recently, four landowner decertification petitions filed by Clay Road 628 Development, LP (“Clay Road”) have caught the attention of the regulated community and the Commissioners of the PUC alike. Specifically, discussion at the April 17, 2020 open meeting of the PUC indicates that there may be a change in the analysis of some of the factors weighed by the PUC in its consideration of these petitions for streamlined, expedited CCN release.

According to the filings at the PUC, Clay Road owns five contiguous tracts of land in Montgomery County, containing approximately 269 acres in total (the “Property”). Portions of the Property lie within the boundaries of water and wastewater CCNs held by four different utilities: UA Holdings 1994-5, LP (“UA”); Stanley Lake Municipal Utility District (“Stanley Lake MUD”); Simply Aquatics, Inc. (“Simply Aquatics”); and T & W Water Service Company (“T & W”). Clay Road’s petitions request that the PUC remove its land from the CCNs of each of these four service providers, presumably to obtain service from another provider.

The PUC approved the first of Clay Road’s four petitions in early February 2020, granting streamlined expedited release of that portion of the Property from UA’s sewer CCN in Docket No. 50258.

Clay Road’s remaining three petitions, those in Docket Nos. 50259, 50260, and 50261, were placed on the PUC’s agenda for the open meeting held on April 17, 2020. At that meeting, prior to taking any action, Chairman DeAnn Walker discussed her position on those three petitions with Commissioners D’Andrea and Botkin. She expressed discomfort with granting any of the three petitions, citing concerns with their apparent intent to allow Clay Road to create an investor-owned utility to serve the Property following decertification, as opposed to using the existing capable service providers. Chairman Walker indicated that petitions of this sort conflict with the State’s policy to encourage and promote the development and use of regional and area-wide water and wastewater systems. She also noted the low success rate of developer-owned utility companies.

Ultimately, Chairman Walker indicated she would vote to deny Clay Road’s petition for streamlined expedited release from T & W’s water CCN in Docket No. 50261. Because T & W owned a water well and treatment plant on the Property, along with water mains serving an adjacent subdivision—and despite the fact that Clay Road is not a customer of T & W—the PUC determined that Clay Road could not in good faith seek decertification on the basis that it was “not receiving” water service. Further, because the remaining two petitions were so closely related to that in Docket No. 50261, Chairman Walker suggested that they be remanded to Docket Management so that Clay Road could be ordered to file a statement informing the Commission whether it intended to withdraw, amend, or continue the processing of its petitions in Docket Nos. 50259 and 50260. Commissioners D’Andrea and Botkin agreed with Chairman Walker’s assessment, and the Commissioners voted to deny decertification from T & W’s CCN and remand the Simply Aquatics and Stanley Lake MUD petitions to Docket Management.

Thus, the decision in the T & W Docket indicates that a new question has arisen as to how the PUC will interpret the meaning of “not receiving water or sewer service” under TWC § 13.2541. Although this decision suggests a sea change in evaluating these petitions for expedited, streamlined release from a CCN, it is not yet final and non-appealable. Rather, in May, Clay Road filed a Motion for Rehearing in the T & W Docket. It is anticipated that the PUC will take action on the Motion for Rehearing in August, and we will provide you with an update on the outcome of that proceeding in a future issue of The Lone Star Current.

David Klein is a Principal and Maris Chambers is an Associate in the Firm’s Water and Districts Practice Groups. If you would like additional information on CCNs or have questions related to this article, please contact David at 512.322.5818 or dklein@lglawfirm.com, or Maris at 512.322.5804 or mchambers@lglawfirm.com.