Published on November 18, 2010 Updated January 28, 2011

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LOWER COLORADO RIVER AUTHORITY P.O. Box 220, Austin, TX 78767-0220 1-800-776-5272 LCRA.

1 LOWER COLORADO RIVER AUTHORITY P.O. Box 220, Austin, TX LCRA.org Published on November 18, 2010 Updated January 28, 2011 To better focus its resources, LCRA is seeking a buyer for its water and wastewater utility. The purchaser will be selected by the LCRA Board of Directors on the basis of its: o Ability and commitment to provide reliable, quality utility services o Ability to invest capital for needed infrastructure o Commitment to meeting state regulatory requirements o Willingness to compensate LCRA for its investment Why is LCRA selling its water and wastewater utility? LCRA s strengths and core responsibilities lie in managing the resources of the lower Colorado River, and operating large, centralized dams and plants and interconnected infrastructure for a large constituency and customer base. That is what we have done successfully for 75 years. Providing water and sewer service to suburban and rural areas requires a different focus and expertise. This mismatch within LCRA s financial and organizational system creates costs. As a result, LCRA s water utilities do not stand on their own financially. Why is the LCRA doing this now? This did not come up overnight. LCRA built the utility system quickly in the mid-1990s and early 2000s in response to community needs for water utility infrastructure to solve environmental problems and meet economic development needs. In 2006, the Board brought in outside consultants to look at the strategic direction, and by August 2007, the Board directed staff to begin divesting some parts of the utility to give it better focus and move the utilities towards financial self-sustainability. Six utilities were sold, and there are ongoing negotiations to sell others. Operational costs were trimmed and rates were raised. This fine-tuning of the utility has not produced the results required by our financial policies. We foresee ongoing rate increases for most systems well into the future. The best approach now is to sell the entire system. 1

2 How many employees will be affected? No employees jobs will be immediately affected. We need to keep doing the same good work providing reliable utility service to our customers. If the utility is sold, some 70 Water Services employees will be directly affected. These LCRA employees operate the systems well and are very knowledgeable and well-trained. They are an asset and LCRA officials hope they would be hired by the purchaser. In the case that a reductionin-force is necessary, LCRA provides an outplacement package. There will be reductions in the number of corporate staff that support the utility, as well. Is LCRA changing its mission? LCRA s mission is established by the Texas Legislature and has not changed. LCRA is not required to provide water and wastewater utility service and provided little service prior to But creating the water utility allowed LCRA to reduce water pollution from substandard wastewater treatment plants and to protect the environment by limiting the number of small, package treatment plants. It also allowed LCRA to help communities accommodate growth by eliminating septic tanks in suburban areas and investing in water treatment infrastructure that newcomers and current residents badly needed. It brought many systems into compliance with state water regulations. The cost of this was in the hundreds of millions of dollars. While the mission of protecting the environment while building the economic base of this region is never truly accomplished, it is true that now that these systems are in place, the capabilities of these communities have been greatly enhanced. How does this impact LCRA s other water operations? LCRA will continue to sell raw water to these utilities and to the rest of the Colorado River basin. We will continue to provide flood management, irrigation services and resource stewardship. How many people will be affected? Some 125,000 people are served by the 32 systems that are up for sale. In many cases, the sale will be invisible because LCRA provides service at the wholesale level to their city or special district. The assets up for sale are the water intakes, water and wastewater treatment plants, pumps, storage tanks collection and distribution pipes, and various associated facilities. How much does LCRA plan on making from the sale? LCRA is a non-profit organization, so all proceeds of the sale will benefit the Colorado River basin. In the case of some of the six utility systems that we have sold recently, we received value that paid off the debt and compensated LCRA for some future revenues. We will not influence the proposals we expect to receive by providing more information about our expectations. 2

3 Isn t LCRA required to be in the water utility business? LCRA is required to make raw water available for sale if we have it, but not required to treat and distribute the water to communities. How will LCRA sell the system? LCRA will hire independent, third-party experts to help us qualify and select buyers. The price will be one of several criteria we will use to evaluate the proposals, including the ability of the purchaser to meet state regulations, provide quality service and invest in future capital infrastructure. When would this happen? During the next 6 to 8 months, LCRA will seek qualified buyers. A period of approximately 18 to 24 months is anticipated until final transfer of ownership. New questions and answers added January 20, 2011 When did the customers of the utility systems learn about the sale? Notification of customers of the water utilities and most of the elected officials in their communities began within hours of the Board s decision on November 17, Wholesale customers communities that buy water and sewer service from LCRA and then resell the service to retail users were included in a variety of communications telephone, s and letters. The media was alerted and information posted on the Internet. Retail customer service offices were given up-to-date information and retail customers had information printed on their bills over the next 30 days or so. Why weren t customers asked in advance about LCRA seeking a buyer for the utility system? The only decision the Board made was to explore the possible sale of the utility system. The decision to sell the system will not be made until the staff determines whether a buyer can meet the Board s criteria. While LCRA customers were not told in advance of the decision to sell the system as a lot, it has been a matter of public record for nearly three years that LCRA had stopped expanding its system and was seeking to divest itself of large portions of the system. The Board passed a resolution in 2008, expanding language it made publicly in 2007 that directed the staff to seek sales of parts of the system to communities and other entities. The sell-strategy was no secret. Six communities bought the systems that served them and LCRA began negotiations with several more communities in Burnet, Bastrop, 3

4 Williamson and Travis counties. The November action by the Board was the natural extension of its existing policy. What is the process of responding to the Board resolution? First, LCRA hired an investment bank. The investment bank will receive statements of interest from potential bidders, then provide information to those potential bidders this spring. Then, staff will select a proposed buyer (or buyers) and bring that recommendation to the LCRA Board, probably this summer. Ultimately, it is up to the Board to determine whether a proposed buyer meets its criteria. The Board s decision on a buyer will be made at a public meeting. Information regarding the qualifications of a buyer and its proposal will be discussed and provided during and following the meeting. Assuming a proposal is accepted by the Board, the process of contract transfers and regulatory approvals would begin, taking an estimated months to close. The regulatory process, before the Texas Commission on Environmental Quality, requires public notices for the transfer of systems and associated certificates of convenience and necessity. What are the criteria that staff will use to assess buyers? Ability and commitment to provide reliable, quality utility services Ability to invest capital for needed infrastructure Commitment to meeting state regulatory requirements Willingness to compensate LCRA for its investment Will LCRA allow communities that are served by the utilities a chance to buy their systems? If an entity has a right of first refusal or similar contractual right, LCRA will honor it. But LCRA will not create such rights where none existed before. The creation of new rights to buy would make it more difficult to divest the utility system and could reduce the price. That has a real potential cost to other LCRA customers and could take value away from them. The Board exempted several utilities from the sale for 60 days because the communities were already in negotiations. Will LCRA put those systems up for bid after the deadline? The LCRA Board on January 19, 2011, granted an additional 60-day period (until March 11, 2011) for these ongoing negotiations to conclude. 4

5 Does LCRA expect a single buyer to purchase all the systems that remain after March 11? It is possible that a single buyer will want to purchase all remaining systems after negotiations end with communities. It may also be the case that different buyers want to purchase groups of utilities. What is important to LCRA is that a sale is presented to the Board of Directors that involves all remaining utilities and that best meets the criteria established by the Board, recovering LCRA s investment. LCRA intends to find entities large enough and strong enough financially to be able to serve customers well and sustain the $300 million capital investment that LCRA put in place over the past 10 years or so. Large organizations are more likely to continue to meet state regulatory standards and be best equipped to provide good customer service. What LCRA must avoid is a one-by-one sale that leaves LCRA with only a few systems. Economies of scale would be lost and the cost of running surviving systems might be higher than ever. Will there be rate increases? So long as it owns the system, LCRA will continue to implement rate increases that are consistent with its financial and business plans. As for increases after the sale, LCRA does not know whether increases, if any, would be larger or smaller than those already contemplated in LCRA business plans. 5

Questions and Answers on Sewer Issues By Ted Beals, Waterloo Resident

1 of 5 11/17/2003 12:13 AM Questions and Answers on Sewer Issues By Ted Beals, Waterloo Resident Are there plans for laying a sewer line through Waterloo Township? At several public meetings, in Stockbridge,