Texas Water Board Pumps $250M into New Reservoir

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DALLAS — Amid growing concerns about a long-term drought, the Texas Water Development Board is providing $250 million of bond financing to the Lower Colorado River Authority for a proposed reservoir.

The TWDB approved the funding at its Sept. 4 meeting. The LCRA project was among several that were awarded financing from the board, which acts as a bond bank for local water utilities.

The LCRA reservoir, designed to provide more reliable water supplies to rice farmers and other customers in Wharton County, would be the first in Texas in more than 15 years if it opens on schedule in 2017.

"This new reservoir will help LCRA continue to provide a reliable water supply to the communities, industries and other customers that depend on us," said Phil Wilson, executive director of the water and power agency.

Under its 50-year repayment term, LCRA requested a debt-service schedule with interest-only payments for the first 10 years, according to documents submitted for the board's vote.

Through a financing agreement, the Texas Water Development Board will work to sell what it calls "match bonds" to finance the debt. A portion of the financing package will be used to pay off commercial paper, the agency said.

"Due to the size and structure of the proposed debt service, it is anticipated that the TWDB will sell bonds specifically and separately for the LCRA project," according to loan documents. "This 'match bond' allows unique debt service structures because the ultimate user, LCRA, assumes the full debt service risk, including the TWDB cost of funds."

By extending Texas' triple-A credit rating, the TWDB bonds offer local utilities the lowest possible interest rates. The TWDB bonds also carry a double-barrel pledge because they are backed by project revenues.

Under a two-year commitment, the first bond issuance would come in September 2015 for approximately $80-90 million, according to the TWDB. The second issue would occur around September 2016 for the remainder of the financing, depending on the project's budget compared to actual performance.

LCRA maintains a Resource Development Fund which for payment of debt service.

On its scale of risk, the LCRA reservoir earned a TWDB score of 2B, meaning LCRA's repayment capacity is "adequate."

"The applicant's earnings trends and coverage ratios, while stable, may be more susceptible to moderate changes in circumstances and economic conditions than the higher rated obligations," according to TWDB staff. "Certain risk elements may exist that suggest susceptibility to future impairment, if not managed."

With drought threatening LCRA's ability to supply water downstream from the so-called Highland Lakes in Central Texas, the agency began planning the reservoir to capture water from rainfall and tributaries downstream near the Gulf Coast.

Among the major customers for LCRA water are rice farmers in the coastal region.

The reservoir would feature a new design for Texas, like those in Florida.

The reservoir would draw water from the main channel of the lower Colorado River near Lane City in Wharton County, about 60 miles southwest of Houston, adding about 15% to LCRA's annual water supply.

Last year, the LCRA board approved $18 million to buy the reservoir site and conduct the initial design, engineering and permitting. The board approved another $17 million in March to fund the final design of the reservoir and infrastructure needed to pump water from the Colorado.
The money will also pay for moving an electric transmission line on the reservoir site and other work.

Upstream from the proposed reservoir, lakes Buchanan and Travis are the region's main water sources, supplying more than 1 million people in Central Texas. Because of the severe drought gripping Central Texas, the lakes are at 38% of capacity and could fall even lower if the severe drought continues.

The new reservoir would reduce the need to release water from lakes Travis and Buchanan to serve customers in the lower basin. The reservoir would also allow LCRA to capture water that enters the river downstream of Lake Travis for future use.

"The reservoir project makes sense for the entire basin," Wilson said. "This action shows how committed the board is to expanding the water supply for the future of this region."

The last major reservoir to open in Texas was Lake Gilmer in 2001. That reservoir serves northeast Texas.

Anticipating a near doubling of the state's population in 50 years, Texas water planners see a need for 26 new large reservoirs at a cost of $13.6 billion. While not all are likely to be built, the LCRA reservoir could provide a template for future construction.

Rather than the traditional dam on a creek or river, the new design will essentially be a holding pond surrounded by embankments 40 feet high. Similar reservoirs have been built in Florida and Ohio.

In April 2013, the LCRA selected CH2M Hill to engineer and design the off-channel reservoir project.

A river intake and pump station will transfer flows from the river to an existing canal, which will convey the water via gravity to a second pump station. Known as the re-lift pump station, the second pump station will discharge the water into the reservoir, which will be designed to convey flows by gravity to existing nearby irrigation systems as well as return water to the river, according to the engineering firm.

Water will be transferred from the river to the reservoir based on various factors, including time of year, hydrological conditions, and water rights obligations.

Among the design challenges to be addressed is the complexity of determining when and how much water may be pumped from the river most efficiently.

The goal is to "get the most out of the storage," said project designer Ken Hall.

"You don't see many reservoirs this size being built recently," Hall said.

Major construction is expected to begin in 2015, though certain early work packages could begin this year, depending on the timing of permit approvals and input from the constructor, officials said.

LCRA has expressed an interest in building two additional off-channel reservoirs in southeast Texas: a $266-million 1,024-acre reservoir in Colorado County and a $200-million 798-acre reservoir in Matagorda County. The authority continues to evaluate the possibility of building the new reservoirs, officials said.

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