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HomeMy WebLinkAboutRES 101122-5.AI - TCEQ Wastewater RegulationRESOLUTION NO. jo l zz— S• A-f— A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF GEORGETOWN, TEXAS APPROVING SUBMITTAL OF COMMENTS ON THE TEXAS COMMISSION ON ENVIRONMENTAL QUALITY'S DRAFT REGULATORY GUIDANCE DOCUMENT ON WASTEWATER REGIONALIZATION; PROVIDING A SEVERABILITY CLAUSE; AND PROVIDING AN EFFECTIVE DATE. WHEREAS, the Texas Commission on Environmental Quality ("TCEQ") Water Quality Advisory Work Group published a draft Regulatory Guidance Document entitled "TCEQ RG Draft — Evaluating Regionalization for Potential New Wastewater Systems" (September 2022) (the "Draft Regulatory Guidance"); and WHEREAS, the Draft Regulatory Guidance is intended to assist TCEQ's technical review staff and the regulated community in implementing the Legislature's wastewater regionalization policy codified in the Texas Water Code, by providing guidance on wastewater regionalization, and describing the information needed to evaluate wastewater regionalization as a practical option versus building a new, stand-alone wastewater treatment plant; and WHEREAS, the TCEQ made the Draft Regulatory Guidance publicly available as a courtesy to stakeholders to review and provide informal comments by October 23, 2022; and WHEREAS, the City Council supports wastewater regionalization policies and practices that would reduce or eliminate the construction of new, standalone wastewater package plants; and WHEREAS, the City is the owner and operator of five wastewater treatment plants, a Texas Pollutant Discharge Elimination System permit for a sixth, and land acquired for a seventh, all to serve its existing 35,891 customer accounts and future service area population projected to be 199,274 by 2032. WHEREAS, the City staff has reviewed the Draft Regulatory Guidance and prepared comments, which are attached to this Resolution as Exhibit A (the "City Comments"); and WHEREAS, the City Council has reviewed the attached City Comments, concurs with the substance of the City Comments, and finds the submittal of the attached City Comments to the TCEQ to be in the best interest of the City. NOW, THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF GEORGETOWN, TEXAS: Resolution Number: _161l ZZ —Jam-A-C Description: TCEQ Comments Date Approved: QC*6 )&K 11 �2022 Section 1. The Comments attached to this Resolution as Exhibit A have been presented to and reviewed by the City Council and the City Council hereby approves said Comments in substantially the form as presented in Exhibit A. Section 2. The City Council authorizes the City Attorney to finalize the City Comments and submit the City Comments to the TCEQ. Section 3. If any section, article, paragraph, sentence, clause, phrase, or word in this Resolution, or application thereof to any persons or circumstances is held invalid or unconstitutional by a court of competent jurisdiction, such holding shall not affect the validity of the remaining portions of this Resolution; and the City Council hereby declares it would have passed such remaining portion of this Resolution, despite such invalidity, which remaining portions shall remain in full force and effect. Section 4. The Mayor is hereby authorized to execute this Resolution and the City Secretary to attest. This Resolution shall become effective immediately upon its approval and execution. -ti� PASSED AND APPROVED on this ATTEST: Robyn Den mare, City Secretary APPROVED AS TO FORM S so , City Attorney Resolution Number: I o1I ZZ' 5• AT - Description: TCEQ Comments Date Approved: ()cVN „r T2022 - A- 1 022. [INSERT CITY LETTERHEAD] [DATE] VIA EMAIL TO: Outreach@tceq.texas.gov Water Quality Advisory Work Group Texas Commission on Environmental Quality PO Box 13087 Austin, TX 78701-3087 Re: The City of Georgetown, Texas' Comments Regarding the Draft Wastewater Regionalization Guidance Document entitled "TCEQ RG Draft —Evaluating Regionalization for Potential New Wastewater Systems" (September 2022) To the Texas Commission on Environmental Quality ("TCEQ") Water Quality Advisory Workgroup ("WQAWG"): On behalf of the City of Georgetown, Texas (the "City"), please accept and consider the following comments concerning the September 2022 "TCEQ RG Draft —Evaluating Regionalization for Potential New Wastewater Systems" (the "Draft RG") relating to the evaluation of regionalization for potential new wastewater systems by the TCEQ. I. INTRODUCTION The City appreciates the Executive Director's ("ED") efforts to respond to the Commissioners' May 18, 2022 directive to work with stakeholders to update the TCEQ's wastewater regionalization guidance or rules and revised permit application documents, and provide a report (or actual draft /rules and revised permit application forms) to the Commissioners by the end of 2022.1 The City has reviewed the Draft RG from its perspective as the owner and operator of five wastewater treatment plants, a Texas Pollutant Discharge Elimination System ("TPDES") permit for a sixth, and land acquired for a seventh, all to serve its existing 35,891 customer accounts and future service area population projected to be roughly 199,000 by 2032. The City has also reviewed the Draft RG from its perspective as an opponent of applications for new, small wastewater package plants located within or designed to serve the City's planned wastewater service area. From those twin perspectives, the City has several concerns about the Draft RG, which are summarized below. I iittps://www.youtube.conilwatch?v=2a2f'nSovmuI, Commission Agenda, May 18, 2022, Item 23, TCEQ Docket No. 2022-0382-PET, 1:27:06-2:06:54 (Motion by Commissioner Lindley, approved 3-0, to deny the rulemaking petition filed by Cities of San Marcos, McAllen, and Jarrell requesting adoption of their proposed wastewater regionalization rule, but simultaneously directing the ED to work with interested persons to present a proposal to the Commissioners at a future work session or an agenda, preferably in the third quarter of 2022, for a regionalization guidance document and necessary changes to the permit application form, expressly acknowledging attention of Sunset Commission on the regionalization issue.) The Commission's Water Quality Advisory Group (WQAG) prepared a draft TCEQ Regulatory Guidance Document for Evaluation Regionalization for Potential New Wastewater Systems, and is accepting comments on the draft guidance document until October 23, 2022. hops:l/www.tceq.texas.govlpermitting/wastewater/WO advisory_group.hhnl. 1. The statutory and regulatory authority cited in the Draft RG is not the statutory or regulatory authority for which the Commissioners directed the ED to develop a guidance document. The Draft RG states that it is intended to provide guidance on the provisions of Texas Water Code ("TWC") Sections 26.081-26.087 ("Subchapter C. Regional and Area - Wide Systems") ("Subchapter C"). However, Subchapter C already codifies a relatively detailed process by which the Commissioners, using their rulemaking authority subject to the election process described in Subchapter C, can: (i) designate (within a SMSA)2 an area as one in which regional wastewater collection, treatment, and disposal is necessary; (ii) designate a preferred provider of such regional services; (iii) order an election on the issue; and (iv) exercise considerable additional authority in the area, such as rate -setting authority. Guidance is needed on implementing TWC § 26.003, not Subchapter C. 2. The Draft RG will lead directly and inexorably to balkanization, not regionalization, and the proliferation of small package plants, each a new potential point source of pollution. This is because the Draft RG defines "regionalization" in vague, confusing, and self -referencing language, and makes no effort to develop a framework or equation having all the factors needed to analyze the pros and cons of regionalization in any given scenario. 3. The Draft RG has language that confuses "need" with "regionalization," and appears to limit the ED's role in evaluating "need." The Draft RG should focus on "regionalization," not "need," and should describe the roles of the ED, the Office of Public Interest Counsel ("OPIC"), and the Commissioners in wastewater regionalization. As drafted, the Section entitled "What is TCEQ's Role" focuses on "need" and ignores the TCEQ's multiple roles in implementing "regionalization." 4. The Draft RG provides no guidance on whether an applicant or the ED can conclude that there has been a denial of service by a nearby wastewater collection, treatment, and disposal service provider based on allegedly onerous or undesirable (to the applicant or ED) service conditions. This has been the most hotly debated regionalization -related issue of late, and it is not addressed at all in the Draft RG. 5. The Draft RG provides no guidance on what costs are relevant to a regionalization analysis or when cost information is required to be submitted. What costs are relevant and when cost information is required to be submitted are hotly debated regionalization issues, and they are not adequately addressed in the Draft RG. 6. The Draft RG does not include all relevant information needed to make a valid comparison of a new plant vs. connecting to an existing plant, such as the effect on customer rates under each scenario, or the financial, managerial, and technical ("FMT") capabilities of BOTH the owner/operator of the proposed new plant AND the owner/operator of all nearby existing wastewater treatment systems. 2 "SMSA" refers to a "Standard Metropolitan Statistical Area." The term is defined in TWC § 26.081(d) as "an area consisting of a county or one or more contiguous counties which is officially designated as such by the United States Office of Management and Budget or its successor in this function." 7. The Draft RG's exceptions to the presumption that regionalization is required are vague and ill-defined. The information in the sections of the Draft RG entitled "TCEQ Regionalization Guidance"3 and "Special Cases that may apply to your Proposed new WWTP System"4 are poorly organized, incomplete, and not designed to elicit information necessary to implement the Legislature's regionalization policy directive on a case -by -case basis. 8. The section of the Draft RG entitled "Exception Request Considerations"5 should be deleted. This language undermines the entire regionalization analysis and is short-sighted. 9. The Draft RG should state that, on its final adoption, it will control application forms and instructions issued prior to adoption of the Draft RG. In short, the Draft RG does not provide adequate or relevant guidance on wastewater regionalization, and the "guidance" it does provide raises more questions than answers. II. DETAILED COMMENTS Given the significant effect that the State's regionalization policy has on the City's ability to promote and protect public health and the environment within its jurisdiction and service area, the City hereby respectfully submits the following detailed comments on the Draft RG. A. The Draft RG is grounded in the wrong statutory authority. The Draft RG states that it is intended to provide guidance on Subchapter C. This is not the relevant section of the TWC, nor one on which additional guidance is needed. A regulatory guidance document is needed to address TWC § 26.003, not Subchapter C. Subchapter C allows the Commission to use its rulemaking authority, after the required notice and hearing, to designate certain areas within a SMSA as ones in which wastewater regionalization is necessary and desirable, to designate a preferred provider, order an election to confirm same, and exercise considerably more authority in the designated area (e.g., rate setting authority). In 1978, the Commission promulgated rules at 30 TAC Ch. 351 entitled "Regionalization" designating a handful of such areas, and recently "undesignated" the Lower Rio Grande as such an area. Granted, the Commission has not adopted rules pursuant to Subchapter C for the last 44 years, but the process for doing so has already been provided by the Legislature with relative clarity in Subchapter C. In contrast, the overarching policy directive in TWC § 26.003 (Policy of this Subchapter) remains unaddressed by Commission rule or the Draft RG. TWC § 26.003 states: 3 Draft RG at 2. 4 Draft RG at 5-6. s Draft RG at 6. Sec. 26.003. POLICY OF THIS SUBCHAPTER. It is the policy of this state and the purpose of this subchapter to maintain the quality of water in the state consistent with the public health and enjoyment, the propagation and protection of terrestrial and aquatic life, and the operation of existing industries, taking into consideration the economic development of the state; to encourage and promote the development and use of regional and areawide waste collection, treatment, and disposal systems to serve the waste disposal needs of the citizens of the state; and to require the use of all reasonable methods to implement this policy. TWC § 26.003 sets forth two policy directives from the Legislature to the TCEQ, requiring it to use "all reasonable methods" to implement these policy directives: 1. to maintain the quality of water in the state consistent with the public health and enjoyment, the propagation and protection of terrestrial and aquatic life, and the operation of existing industries, taking into consideration the economic development of the state; and 2. to encourage and promote the development and use of regional and areawide waste collection, treatment, and disposal systems to serve the waste disposal needs of the citizens of the state. It is the second policy directive —pertaining to wastewater regionalization —on which agency rulemaking or guidance is urgently needed. Unfortunately, the Draft RG falls short. The sections entitled "Introduction" and "Statutory and Regulatory Authority for Regionalization" reference the Subchapter C rule/election regionalization process, not TWC § 26.003. While Subchapter C may have some concepts or principles which overlap with and are useful to consider under TWC § 26.003, Subchapter C is a different process. B. The definition and examples of "regionalization" in the Draft RG are confusing and vague. The first sentence in the section of the Draft RG entitled "Definition of Regionalization"6 is vague and should not be included in any adopted guidance document. This sentence states that "[r]egionalization is the administrative or physical combination of two or more community wastewater systems to improve planning, operation, and/or management." First, it is unclear what is meant by an "administrative" combination of two or more community systems and how an "administrative" combination encourages or promotes regionalization. For example, there are some customers who receive wastewater service from one provider and water service from another provider (e.g., one that has a water Certificate of Convenience and Necessity ("CCN")' that overlaps with parts of the wastewater provider's service area). The water and wastewater providers may agree between themselves that one of them will handle customer billing to reduce administrative costs and streamline customer communication. 6 Draft RG at 1. 7 A CCN grants its holder the exclusive right to provide retail water or sewer utility service to an identified geographic area. See § TWC 13.242. For example, the wastewater service provider may issue one bill to the shared customers for both services, collect both amounts due, remit the amount paid for water service to the water service provider, and retain the amount paid for wastewater services. Does this make the wastewater provider a regional provider of water services simply because it handles the administrative customer billing function? If the water services provider had agreed to perform the billing function for both water and wastewater, would that make the water provider a regional provider of wastewater services? In the wastewater permitting context, the City does not think an agreement between two providers to share customer billing expenses (or other administrative expenses) constitutes "regionalization" within the meaning of TWC § 26.003. To decide otherwise would be inconsistent with the definition of "wastewater treatment facility" itself —the very subject of a TPDES permit. The term "wastewater treatment facility" is defined in 30 TAC § 217.2(80), which indicates that such a facility includes "[a]ll contiguous land and fixtures, structures, and appurtenances used for storing, processing, and treating wastewater. A wastewater treatment facility does not include the collection system located outside of the fenced area around a wastewater treatment facility. ,8 Given that the definition of the term "wastewater treatment facility" excludes even collection systems, it is not logical that it extends to include billing software or administrative activities. Second, it is unclear what is meant by the "physical" combination of two or more community wastewater systems. The Draft RG seems to describe an instance when two independent authorized or actual wastewater treatment providers contract with each other to jointly construct, own, operate, and maintain a wastewater treatment system. If such a cooperative arrangement reduces cost and maximizes wastewater treatment capacity through economies of scale, that would seem to advance the regionalization policy goal. But nothing in the remainder of the Draft RG addresses that scenario. The third paragraph in the section of the Draft RG entitled "Definition of Regionalization," which includes bulleted "examples" of regionalization, is a bit more helpful as to what is meant by "regionalization," but is still vague. It lists three non-exclusive examples of regionalization: "large-scale regionalization," "small-scale regionalization," and "simple regionalization."9 "Large-scale regionalization" is described as "typically an existing wastewater system or systems capable of providing service to a large part of the population over a broad geographic area." Under this description, the City has implemented the Legislature's regionalization policy by constructing, owning, and operating five (soon to be seven) integrated wastewater service plants serving the City as well as parts of Williamson County. The City has consistently maintained that it is a regional provider of wastewater treatment services, and this description of large-scale regionalization supports and recognizes the City's position.10 However, if the Draft RG is intended to facilitate "large-scale regionalization," it should so state and describe how. Instead, as discussed more fully below, the Draft RG seems to favor reducing or preventing "large-scale regionalization." 8 30 TAC § 217.2(80). 9 Draft RG at 1. 10 In contrast, permittees of unbuilt facilities are not considered owners of existing systems and do not have to be contacted by the applicant with a request for service. See Draft RG at 4-5. "Small-scale regionalization" is described as "systems outside the service area of a larger regional system forming an areawide system." This description of "regionalization" is unclear. It reads as if it is meant to describe a network of "smaller" systems operating in concert with each other to provide wastewater treatment services to areas outside of a "large-scale regionalization" system. In other words, does this refer to systems that are outside the service area of a "large- scale" regional provider that are connected to each other but smaller in size than a "large-scale" regional provider? If so, the Draft RG should state that the network of smaller systems is considered a "small-scale" regional provider if the systems are permitted, owned, and/or operated by a common entity. Otherwise, the example is simply one of a ring of unrelated, stand-alone package plants, which is the opposite of "regionalization." "Simple regionalization" is described as "requesting service and connecting to a viable neighboring system." This is simple indeed —physically connecting to a neighboring system and not constructing a new plant is the most basic description of regionalization. This is the one example of "regionalization" that the Draft RG seems to be attempting to address. Also, the City is concerned that the equivocal language in the paragraph following the bulleted list of regionalization scenarios sends mixed signals that only exacerbate current regulatory uncertainty." There are two additional paragraphs in this same section of RG 551 that are omitted from the Draft RG which could counter this uncertainty. Those paragraphs in RG 551 state the policy objective very clearly, as follows: In applying this guidance our objective is to decrease the number of Texans being served by systems unable to provide continuous and adequate service. If formation of a regional system is the least expensive long-term solution for providing quality service, we require those proposing a new system form a regional system or request service from an existing area provider instead.12 C. The Draft RG confuses "need" with "regionalization." The Draft RG has language that confuses "need" with "regionalization," and appears to limit the ED's role in evaluating "need." The Draft RG should focus on "regionalization," not "need," and should describe the roles of the ED, OPIC, and the Commissioners in wastewater regionalization. In the Sections entitled, "What is TCEQ's Role"13 and "Where do you Start,"14 the Draft RG states that the TCEQ—presumably the ED—will evaluate "need." "Need" is not synonymous with "regionalization." Demonstrating "need" is not a significantly high burden —basically, a developer -applicant would have to show only that it wants to build a subdivision and the I I Draft RG at 2. 12RG551 at4. 3 Draft RG at 3. �a Draft RG at 3-4. subdivision needs wastewater service. Under current practice, which the Draft RG proposes to continue, this interpretation of "need" is fairly straightforward to analyze. While useful to support the issue of "need," and is necessary for applicants to demonstrate as part of a prima facie case, the Draft RG should distinguish "need" from "regionalization" and focus on "regionalization." In addition to rephrasing the TCEQ's role in implementing regionalization to focus on "regionalization," (not just "need"), the Draft RG should describe the roles of the ED, OPIC, and the Commissioners in implementing the Legislature's regionalization policy directive. For example, the Draft RG also does not address the role of OPIC under 30 Tex. Admin. Code ("TAC") § 80.110(a)(8), requiring OPIC to consider "the extent to which the proposed agency action serves the commission policies regarding regionalization or other relevant considerations regarding the need for facilities or services to be authorized by the action." This is also the Commissioners' role. Those roles are arguably more far-reaching than the ED's role. The ED is charged with developing coherent and consistent application forms and instructions, and with performing administrative and technical reviews of completed applications. The ED will need staff with skills to perform the regionalization review. D. The section of the Draft RG entitled "Exception Request Considerations"15 should be deleted. The first "exception request" example, purporting to except from any regionalization analysis connections that require crossing a "water body," is too broad. It would seem to exempt any project near a creek bed. Wastewater lines cross and parallel creek beds and other "water bodies" all over Texas —many gravity wastewater lines are actually constructed in creek beds, as those areas are lowest -lying. If the intent is to consider the cost of crossing a "water body" from a cost perspective, any additional cost associated with such a crossing should be in the cost analysis. Similar difficult field conditions, such as crossings through karst-features where endangered species are known to exist, can also be addressed in the cost analysis. Making crossings of water bodies an automatic exception to regionalization analysis is short-sighted and presumptuous. Similarly, the second "exception request" regarding existing CCN holders is not needed. Other laws address the rights and duties of CCN holders. It may also be presumptuous because not all CCN holders can provide service. But CCN issues are in the purview of the Public Utility Commission ("PUC"), not the TCEQ. The third "exception request" regarding the need for easements is the exception that swallows the rule and signals to the Legislature that the TCEQ will never implement the regionalization policy. Easements are needed to connect to existing facilities in nearly every situation. In 99.9% of cases, the cost of acquiring new easements is not zero. In 99.9% of cases —excluding only new development that abuts an existing wastewater treatment plant or where public utility easements were acquired by others (e.g., the City for existing development or prior developers who acquired easements sized for system expansion) --easements will be needed to connect to an existing system. Allowing the need to buy easements to exempt an applicant from the regionalization review flies in the face of how wastewater systems operate and how development occurs. " Draft RG at 6. E. The Draft RG "TCEQ Regionalization Guidance"16 is vague, confusing, and self -referencing language. In general, the Draft RG should make clear that any factor analyzed in the context of constructing a new facility —be it cost, FMT, etc. —should also be assessed in the context of the feasibility of connecting to the existing regional system. If the TCEQ's regionalization analysis does not address both scenarios, any comparisons made and conclusions drawn will be ill-informed at best. In order to avoid this, the projected development value of a new plant has to be compared to the projected development value if the proposed development is instead served by an existing regional provider. Simply assessing the cost of constructing a new facility is a meaningless data point if it cannot be commensurately compared to the alternative option of connecting to an existing system. Any analysis lacking such an "apples -to -apples" comparison of cost would inherently bias the decision -maker in favor of the construction of new facilities. 1. Costs The Draft RG should direct wastewater permit applicants to submit a sealed engineer's opinion of probable costs ("EOPC"), prepared by a registered professional engineer licensed to do business in the State of Texas, costs for BOTH scenarios —construction of a new plant AND connection to an existing plant. Knowing the cost of one option but not the other does not provide the information needed to compare the cost of not regionalizing to the cost of regionalizing. EPOCs will require the applicant to identify the infrastructure needed, construction costs, and add in any required fees, such as wastewater connection fees, impact fees, extension fees, etc. It should be made clear that reimbursed costs must be subtracted from the cost. So if the City is participating in the cost (say, for oversizing), the City's share should not be counted as a cost of connecting to the City's system. The RG should include a template or example of such an EOPC, similar to the one attached to these comments as Attachment 1. 2. Projected Development Value This factor is addressed in RG 551 (albeit for only one of the two possible scenarios), but the City thinks it may be a red herring. First, bringing utilities to raw land will always increase the projected development value of the land regardless of how the utility service is provided. So to say that land value will increase if the land has wastewater service available is basically a known and a given. Second, projected development value is inherently speculative and therefore of questionable value to the Commissioners in the regionalization analysis. Even if a timeframe over which the alleged development value is to be projected were to be specified in the Draft RG, the projected values will always be wrong because only one thing is certain —the market will change over time in unpredictable ways. Further, if the Commission still wanted to go down this road, it would require applicants to submit market studies prepared by a qualified professional analyzing the two scenarios —land served by a new plant and land served by an existing system. Any ' e Draft RG at 2. information short of a market study is not reliable, and even market studies will be heavily qualified (if prepared by a reputable analyst). Third, if the Commission is still determined to explore this complex factor, the Draft RG must require an applicant to: (1) submit information prepared by qualified professionals demonstrating the estimated value at full build out of land and improvements if served by a stand- alone plant AND if served by an existing system ("apples -to -apples"); and (2) must articulate how the estimated value is calculated. To be more specific, if the Commission believes that the "cost of annexation" is an element to be addressed calculating the "projected development value," the Draft RG needs recognize that annexation has benefits, not just costs." In fact, studies have shown that annexation has greater economic benefits than non-annexation.18 There is a significant value to annexation and the privileges and safeguards that are associated therewith, and the Draft RG should address how the TCEQ will quantify and weigh such regionalization benefits against regionalization "costs" (should the TCEQ even wish to wade into such subjective waters). There is some value to be 17 In addition to recognizing the benefits of annexation, the Draft RG should clarify that requiring annexation as a condition of receiving wastewater service is not a denial of service. Though the ED has taken the opposite position, indicating that he "considers annexation as a requirement for receiving wastewater services from a [c]ity tantamount to a denial of requested service" (Executive Director's Response to Comment for TPDES Permit No. WQ0016008001 (Aug. 30, 2022)), the Commissioners do not. Neither does the City, and nor should the Draft RG. Rather, annexation as a requirement for receiving wastewater services should only be considered a denial of service under very limited circumstances, when a service applicant cannot seek a variance from such a requirement. The Commissioners are actually divided on this issue, having issued two orders with exact opposite findings of fact and conclusions of law relating to a City of San Marcos ordinance with annexation provisions similar to the City's. Compare An Order Granting the Application by Crystal Clear Special Utility District and MCLB Land, LLC for TPDES Permit No. WQ001526602 in Hays County, Texas, TCEQ Docket No. 2020-0411-MWD; SOAH Docket No. 582-20-4141 (Jun. 14, 2021) (Finding of Fact ("FOF") No. 47. "San Marcos's response requiring annexation of the Subdivision was property considered a denial of service by the Applicants and the ED's staff.") with An Order Granting the Application by Regal, LLC for TPDES Permit No. WQ001581701 in Guadalupe County, Texas, SOAH Docket No. 582-21-0576; TCEQ Docket No. 2020-0973-MWD) (Nov. 29, 2021) (FOF No. 38 "The City [of San Marcos's] ordinance requiring annexation for wastewater service is not tantamount to a denial of service because the requirement may be waived by City Council."). Both cases are on appeal. City of San Marcos, Texas v. TCEQ, in the 459thth Judicial District Court of Travis County, Texas, Cause No. D-1-GN-21-003110 (Jul. 2, 2021); City of Can Marcos, Texas v. TCEQ, in the 200thth Judicial District Court of Travis County, Texas, Cause No. D-1-GN-21- 007272 (Dec. 16, 2021). More recently, a SOAH Proposal for Decision, specifically addressing the City's ordinance, reached no conclusion on the question. SOAH Docket No. 582-22-1016; TCEQ Docket No. 2021-1214-MWD; Application by AIR-W 2017-7 L.P. for TPDES Permit No. WQ0015878001 (Aug.ust 23, 2022). " See, e.g, TEX. MUN. LEAGUE, HOW CITIES WORK 35 (2017), https://www.tml.org/p/ HowCitiesWork2017Web.pdf [https://perma.cc/3LH3-279D] ("States in which city councils decide whether to annex have seen their cities grow faster over the past [twenty-five] years, both economically and demographically, than other states that limit annexation; PERRYMAN GRP., THE IMPACT OF OVERLY RESTRICTIVE ANNEXATION POLICY ON ECONOMIC ACTIVITY IN TEXAS AND ITS METROPOLITAN REGIONS 16, 21-22 (2003), https://www.tml.org/p/2003PerrymanReport.pdf [https://perma.cc/YHX2-54FP] (predicting severe legislative restrictions on municipal annexation will cost the State of Texas 1305.7 billion in yearly gross product, $168.8 billion in annual personal income, and 1,234,760 permanent jobs" over a thirty-year period); DAVID RUSK, BROOKINGS INST. METRO. POLICY PROGRAM, ANNEXATION AND THE FISCAL FATE OF CITIES (2006), https://www.brookings.edu/wp-content/uploads/ 2016/06/20060810_fateofcities.pdf [https://perma.ccN367-C249] ("State legislatures should have a vital interest in ensuring the fiscal viability of their state's municipalities, particularly their major cities."). recognized in not having people living next to or being served by standalone plants with no redundant features, eliminating sources of pollution, and enjoying city -funded services and planning. It would be wrong for the Draft RG to indicate that annexation has only costs and no benefits. If annexation is to be considered, the applicant should be required to articulate and quantify the costs and benefits of annexation. The City cautions the Commission that taking such considerations into account would change the landscape of a typical wastewater treatment plant permit hearing into a referendum on municipal planning, utility planning, marketing, and financial profit, rather than protection of water quality and protection of human health and the environment. The ED's staff is not equipped to conduct such detailed economic analysis, and no clear guidelines exist or are proposed in the Draft RG to provide a regulatory framework for conducting such analyses. The City asks that the TCEQ limit its analysis of the "the cost of connecting" versus "the cost of the proposed facility" to the physical costs associated with construction and connection, not subjective economic modeling data. But if the Commissioners reject the opportunity to bring more objectivity into the analysis and still desire to consider less quantifiable alleged "costs of regionalization," then they should also consider the financial benefits associated therewith. Finally, less weight should be given to the factor of projected development value if the project for which the wastewater service is needed is not an economic development project. Economic development—i.e., adding and retaining jobs —should be distinguished from simply increasing property value through utility entitlements because bringing utility service to land where there was no service before will always increase the monetary value of that land, regardless of how the utility service is provided. This is especially true in light of local governmental entities' interests in drought resilience and compliance with applicable regulations and the State Water Plan. For example, the City's water and wastewater master plan contemplates the reuse of treated effluent in capacities that could be diminished by the permitting of cheaper -in -the -short-term, but less -effective decentralized package plants within its ETJ. Doing so would create virtual "colonias"19 in the City's ETJ, and the costs of undermining the regional system in such way should be considered in the TCEQ's regionalization analysis. 3. Rates Like RG 551, the Draft RG should require applicants to submit rate information for service from a new standalone plant and service from an existing system. Here, however, an "apples -to - apples" comparison is made more difficult by the fact that an existing system will have an ordinance or tariff clearly setting out its rates, whereas no such rate information will be available for a proposed new facility unless the operator will be a CCN-holder with its own tariff or ordinance. As such, the City requests that the Draft RG be updated to require Applicants to provide a preliminary annual cost of service study and rate design analysis for customers of the proposed facility, as well as including applicable rates from neighboring utilities. The Applicant should also 11 littps://xvww.texasattoimagencral.gov/divisions/colonias. be required to provide a draft Sewer Utility Tariff, in the form20 prescribed by the PUC, so the TCEQ may fully analyze the rates and charges to be assessed by the Applicant. 4. FMT The Draft RG should consider require applications to submit FMT information for itself, as well as that of the regional provider. For the applicant, the Draft RG should require submittal of its financial statements, expense lists, organizational charts, and/or rate studies. For the existing provider, the Draft RG should require the applicant to submit information indicating whether the regional provider: (1) has a TCEQ-approved system that is capable of meeting TCEQ design criteria for sewer treatment plants, TCEQ rules, and the TWC; and (2) access to sewer treatment and/or capacity or a long-term contract for purchased sewer treatment and/or capacity with an entity whose system meets those requirements. The Draft RG should include all of the FMT indicators provided in RG 551,21 including: Indicators of Financial Capability • Rates are reviewed on a regular basis. • Rate structure is appropriate to customer base. • Debt coverage ratio is adequate. ■ System is current on debt payments. • All fees to regulatory agencies and laboratories paid on a timely basis. • System has appropriate insurance coverage. • Annual audit is conducted if system is a public entity or WSC. • System has operating reserve accounts or access to funds as needed. System has adequate working capital ratio. System has a high rate of customer account collections. ® System has written policies for collection and termination of service. • Collection policies are enforced. • System has low number of disconnects due to failure to pay bill. Indicators of Managerial Capability * System is aware of their organization type and has legal authority to operate. • System has an operating budget. ■ System has written standard operating procedures. • Customers always have access to water system personnel in case of emergency. • Records are maintained and updated on a regular basis. • Budget is used to determine rates. ■ System has adequate water supply. • System has written emergency plans. 20 https://www.puc.texas.gov/industry/water/Forms/Sewer Utility_Tariffpdf. 21 https://www.tceq.texas.gov/downloads/drinking-water/plan-technical-review/guidance/rg-55l.pdf • System has conveyable title to water -producing assets. • Governing board can conduct meetings and make decisions. A quorum is usually present, and there is a majority vote for most major operating decisions. • Every connection is metered. • Customers are billed on consistent billing cycles based on meter readings. • System owners or board has current CCN (if required). • System has an approved drought contingency plan. • System has an employee handbook or policies. Indicators of Technical Capability • Licensed operator is on site or available to operate the system. • All operators are licensed. • Operators have the appropriate certifications for the size of the system. • System staff can identify oldest piece of equipment and the most vulnerable part of the system. • Process control and preventive maintenance are performed and documented. • System calculates unaccounted-for water and does not have excessive amounts. • System does not have a history of noncompliance with regulatory requirements. 5. Reliability The Draft RG should require applicants to provide an analysis of the general efficacy and life -cycle of the proposed plant as compared to that of the existing regional system. It is the opinion of the City that the goal of regionalization is to end up with as few sources of pollution as possible while at the same time protecting water quality. The City views —and perceives the State's view to be the same —that the proliferation of small "package plants" as an undesirable outcome when there are existing systems capable of collecting and treating waste reliably and cost effectively. E. The "Special Cases"22 section of the Draft RG are confusing and incomplete. The City supports the position statement that, "Our guidance is that regionalization is feasible unless one of the following three situations applies to your system."23 The City believes that the TCEQ does need to be unequivocal on the point that regionalization will be required, and new permit requests denied, except in limited circumstances. Such a statement demonstrates to the Legislature that the TCEQ understands and is implementing the Legislature's regionalization policy directive. The City also recognizes that there are some cases that do not fit the general rule and exceptions must be made. Unfortunately, the above -referenced sections of the Draft RG attempting to describe the purpose for allowing the exceptions, and meaning and scope of those 22 Draft RG at 5-6. 21 Draft RG at 2. exceptions are unclear and confusing to analyze as the discussion of this important topic is split between two different sections with un-identical language. The City's comments on the "exceptions" to regionalization are as follows: 1. Exception 1/Case 1 The Draft RG states that the first exception to the general presumption that regionalization is feasible/required is when: Exception 1: No other wastewater systems are within 3 miles of your proposed system.24 Case 1: There are no existing permitted domestic wastewater treatment facilities or sanitary sewer collection systems within three miles of your planned service area.25 With regard to this situation, the City recommends that the relevant distance be explained and clarified. For example, is the relevant distance: (x) between the existing plant and the proposed plant; (y) the existing service area and the proposed service area; or (z) the existing plant and the planned service area? Those are all different measurements. Mixing and matching them in the Draft RG perpetuates the confusion on this issue. The City believes the relevant distance is the distance between the closest component of the existing systemwhether it is a collection line, force main, or interceptor, or treatment plant —and the planned service area. That is the distance the City would consider in evaluating a service request. The City also recommends that the distance criteria be made more flexible. For example, connection to an existing system located 3.2 miles away should still be evaluated. There is also no indication of how to measure distance —as the crow flies? Via roadways? Via collection system piping? More clarity on the selection of a distance measurement (if one is retained in the final draft) and how to measure it is needed. To eliminate unintended rigidity and uncertainty, this exception should be modified to read, as follows: REVISED Exception/Case 1: No other wastewater treatment service provider has wastewater collection lines or treatment facilities within 3 miles of (or otherwise reasonably close to) your planned service area. Because there is no basis expressed in the Draft RG for using a rigid 3-mile rule to determine whether an existing system is close enough for feasible connection, re -phrasing this exception to regionalization will allow flexibility. In addition, Page 5 of the Draft RG addresses requests for service and responses to such requests under "Case U' Those topics are not relevant to Case 1 and should be moved to the discussion of "Case 2." za Draft RG at 2. 2s Draft RG at 5. 2. Exception 2/Case 2 The Draft RG states that the second exception to the general presumption that regionalization is feasible/required is when: Exception 2: You have requested service from neighboring systems, and your request has been denied.26 Case 2: Your service request has been denied.27 Whether an applicant properly requested service from a nearby provider and whether a provider's response explaining a condition of service constitutes a "denial of service" are among the most hotly debated issues flummoxing the Commission, ED, and regulated entities alike. These are issues that could greatly benefit from being addressed in a rule or Commission -adopted guidance document and are among the main reasons the Commissioners directed the ED to develop a wastewater regionalization guidance document. Yet, these issues would remain ambiguous if the Draft RG is adopted as currently drafted. Recently, applicants and the ED have taken the position that a "request for service" can be any single communication to any employee of a provider about a proposed project, and that a service provider's rules or regulations imposing conditions of service can be construed to be tantamount to a codified, preemptive, denial of service.'$ These interpretations have introduced needless confusion into what should be a very straightforward inquiry. Regarding "requests for service," the Draft RG should include a sample service request form for use when the existing provider has not promulgated its own service request form, and/or when an existing provider has promulgated its own service request form and procedures, require the applicant to demonstrate that the applicant submitted a written request for service using the provider's forms, followed the provider's service request rules, and paid the required application fees. As in RG 551, the Draft RG should expressly state that an applicant must contact each existing system that provides wastewater treatment services to get their "request for service" application and pay any associated fees.29 At a basic level, a service request should be in writing, state the address or tax parcel identification number of the tract(s) of land where service is requested, and provide the projected service delivery schedule (e.g., projected build -out timing). 26 Draft RG at 2. 27 Draft RG at 5. "See Application by AIR W 2017-7, L.P. for New TPDES Permit No. WQ0015878001 (TCEQ DOCKET NO. 2021- 1214-MWD; SOAH DOCKET NO.582-22-1016), Hearing Tr. at 637:22-638:4 (Gordon Cooper); An Order Granting the Application by Crystal Clear Special Utility District and MCLB Land, LLC for TPDES Permit No. WQ001526602 in Hays County, Texas (TCEQ Docket No. 2020-0411-MWD; SOAR Docket No. 582-20-4141 (Jun. 14, 2021) at FOF No. 47 ("San Marcos's response requiring annexation of the Subdivision was property considered a denial of service by the Applicants and the ED's staff."). 29 RG 551 at 9. The request should also include the volume of wastewater collection and treatment capacity requested, or the proposed land use, so the projected volume of wastewater to be treated can be calculated by the provider. If the Commission is willing to parse all regionalization -related costs (see Section E.l and E.2, above), the request for service should also be required to describe the site -specific conditions and identify the specific improvements needed to connect to the nearby existing system with reasonable specificity. The Draft RG requires the applicant to submit such detailed information to the TCEQ with a permit application,30 but does not require that the applicant submit the same information in its request for service to a nearby service provider. The Draft RG correctly requires an applicant to document that it made every reasonable attempt to request service from all existing nearby service providers, and if no response is received, to follow up until a response is received. The Draft RG should also require that copies of all applications/requests for service be submitted to existing nearby providers, and all correspondence from existing nearby providers be provided as part of the application. References to certified letters should be deleted —this can be replaced with the requirement to submit a request for service to the nearby provider on the provider's required form or using a sample form letter included in the guidance document, coupled with a demonstration that the request complied with the provider's rules and regulations, including the requirement to pay processing fees. Regarding "denials of service," the City requests that the Draft RG be revised to add language making it clear that a denial of service must be an express denial from the nearby service provider based on the lack of existing capacity or unwillingness/inability to expand at its own cost to add the additional capacity within the timeframe needed to meet the service request. The Draft RG should require a "denial of service" to be unequivocal and objective based on a direct response from the neighboring provider, not an inference made by the applicant or ED about the effect of a service condition on an applicant. Assertions by an applicant or the ED that a service provider's conditions of service are tantamount to denial either deduced or as may be applied to an applicant on a case -by -case basis should not be construed as a denial of service. A denial of service should be just that —an unequivocal denial based on lack of existing capacity or unwillingness/inability to expand to add additional capacity at its own cost. The Draft RG should not attempt to describe what service conditions might constitute a denial of service to a particular applicant, under circumstances peculiar to the applicant, at a specific point in time, sufficient to demonstrate a valid basis for applicants to be granted an exception from the regionalization policy. That interpretation conflates "unavailability" with "unfeasibility." Those are two different criteria. A service denial means that service is physically unavailable. Conditions of service may mean that, as applied on a case -by -case basis, service is not feasible. For clarity and completeness, this Exception should be revised to provide as follows: REVISED Exception / Case 2: You have submitted a request for wastewater treatment services to the nearby wastewater treatment service provider following the provider's rules and regulations for same (including payment of fees), and the existing wastewater treatment service provider has denied your request because it " Draft RG at 3 ("Where do you start?"). does not have adequate treatment capacity or is unable/unwilling to expand its facility to create the requested capacity. A service request letter and service denial letter are attached to these comments as Attachment 2 to illustrate how clear and objective this criteria should be. 3. Exception 3/Case 3 The Draft RG states that the third exception to the general presumption that regionalization is feasible/required is when: Exception 3: You can successfully demonstrate that you have a valid basis to be granted an exception from the regionalization policy based on the cost analysis provided in the permit application. 3 t Case 3: The cost of connecting to a neighboring system is more expensive than the cost of the proposed facility.32 Again, "cost" is one of the most contentious regionalization issues, and one that the Commissioners expressly directed the ED to address in a rule or guidance document. And yet, the Draft RG provides no "guidance" regarding the components of "cost." The Draft RG refers to the "cost analysis provided in the permit application," but fails to explain that no revised permit application was made available for review in conjunction with the Draft RG.33 The City has several comments on this part of the Draft RG. First, the guidance document needs to state, with specificity, what type of costs are relevant to the regionalization analysis and require an applicant to perform an apples -to -apples comparison of the cost to connect to an existing system versus the cost of constructing a new plant. This can easily be done by requiring a sealed EOPC prepared by a registered engineer licensed to do business in the State of Texas, as discussed above. Second, if factors other than construction costs are considered relevant to the analysis, the Draft RG should identify those factors and specify the type of information required to be submitted pertaining to those factors. The Draft RG could, for example, require an applicant for a new wastewater plant to demonstrate with documentation that a new plant will provide the following more successfully than the existing system: • lower construction costs; ■ higher development value; • lower rates to customers; 31 Draft RG at 2. 32 Draft RG at 5. 33 In their May 18, 2021 meeting, the Commissioners expressly requested that the permit application forms also be revised and that the revised forms be provided to the Commissioners for review in conjunction with the proposed rule or guidance document. Supra, Note 1. • better FMT abilities; and/or • a more reliable facility. To be clear, the above factors, and any others used, should be analyzed for two scenarios: (1) if a new plant is constructed to serve the proposed service area; and (2) if the proposed service area receives service from an existing nearby system. F. Regionalization Analysis Should be the Rule not the Exception Finally, the Draft RG should make clear that regionalization information is required from an applicant in every application unless: (1) there is no existing system within three miles (or "nearby"); or (2) a regional provider has expressly and unequivocally denied service. This should be made clear in the Draft RG, TPDES application form, and instructions. The Draft RG should further clarify that the analysis and instructions provided in the Draft RG, application, and instructions are not subject to interpretation, but will be applied equally in all situations. G. The Draft RG should govern application forms and instructions issued prior to adoption of the Draft RG. The Draft RG does not specifically address whether it applies to the currently existing forms and instructions provided by the TCEQ for applying for TPDES permits. Ideally, the application forms and instructions will be revised promptly to elicit the information required to perform the regionalization analysis, but in the meantime, the Draft RG should explain how inconsistencies should be addressed. III. CONCLUSION For the reasons discussed herein, the City respectfully requests that the TCEQ revise the Draft RG to address the City's comments, and re -publish a revised Draft RG for further public comment. Thank you for the opportunity to submit these comments. Your careful consideration of the City's comments on this important topic is appreciated. [SIGNATURE BLOCK]