DALLAS -The North Harris County Regional Water Authority will complete the first phase of a system to deliver surface water to scores of water utilities in a 337-square mile area north of Houston with today's negotiated sale of $241.2 million of revenue bonds.
The sale will be the RWA's third debt issuance since it was created in 1999 by the Texas Legislature as part of a multi-county effort to reduce ground subsidence in southeast Texas. The authority issued $124.7 million of revenue bonds in 2003 and $93.9 million of bonds in 2005. Subsidence is the sinking of land levels resulting from excessive extraction of groundwater.
The region's subsidence problems have been caused by heavy pumping of water from underground aquifers over decades to feed the growing demands of industry and a rising population in the Houston area, according to Jimmie Schindewolf, general manager of the water authority. The solution, he said, is replacing ground water with adequate supplies of surface water.
"There was tremendous subsidence in the 1970s in the southeastern part of the county, around the Houston Ship Channel," Schindewolf said. "There were enormous volumes of water being pumped out of the ground to serve the refineries and industries in the area."
Ground subsidence in northern Harris County has resulted from water pumped from aquifers to meet the demand of a fast-growing population, he said.
"There are approximately 160 utility districts within our boundaries, and they are 100% reliant on water from wells," Schindewolf said. "We'll be able to hook up 60 of the districts to a surface water supply from Lake Houston with the projects financed by this bond issue.
"We're also depleting the ground water in the area, and some of the supplies don't meet environmental regulations."
First Southwest Co. is lead manager of the underwriting team. Other underwriters include Banc of America Securities LLC, Citi, Coastal Securities Inc., Depfa First Albany Securities LLC, JPMorgan, Morgan Keegan & Co., and Ramirez & Co.
Andrews Kurth LLP and Johnson Radcliffe Petrov & Bobbit PLCC are co-bond counsels. Co-financial advisers are RBC Capital Markets and the GMS Group LLC.
Standard & Poor's raised its unenhanced rating on the RWA's debt from BBB-plus to A-plus with today's issue. Moody's Investors Service has given the authority's debt an unenhanced A3 rating.
The bonds will initially be supported by fees paid by utility districts for water pumped from wells in the authority's boundaries. The agency will provide additional support with revenues from water sales upon completion of the transmission and transmission systems being financed with the bond proceeds.
"We're well under way with the water delivery system," Schindewolf said. "We've completed about 50% of the distribution system, and we will award the contracts for the remainder of the transmission system, and two pumping stations, with these proceeds."
Proceeds from the bond issue will also provide seed money for phase two of the water delivery system, he said.
The shift in water supply sources is mandated by the Harris-Galveston Coastal Subsidence District, which in 1999 issued requirements cutting the use of groundwater in the region by 30% in 2010, 70% in 2020, and by 80% in 2030.
The water authority plans to issue up to $1.2 billion in debt over the next 20 years, including this bond issue and those in 2003 and 2005, up from earlier estimates of $670 million of debt. The agency's next bond sale is tentatively scheduled for 2011, with an issue of approximately $60 million.
The RWA in 2002 agreed on a 40-year contract to buy surface water from Houston, with 20-year renewal options. Proceeds from the 2003 bonds allowed the authority to purchase 31 million gallons a day from Houston's northeast treatment plant. Some of the proceeds from this bond sale will purchase another five million gallons day of capacity.
