Texas allocated portion of Louisiana’s Toledo Reservoir water sale

• Baton Rouge

By Thomas Aswell
Capitol News Service

Documents obtained by Capitol News Service have created additional confusion over the proposed allocation of funds from the anticipated sale of 600,000 acre-feet of Louisiana's share of surplus water from Toledo Bend Reservoir and over financing of a $10 million revenue bond issue floated by the Sabine River Authority (SRA) of Louisiana and approved by the State Bond Commission last June.

The affairs of the lake, which straddles the Louisiana-Texas border is governed by two separate agencies, the Sabine River Authority of Louisiana and its counterpart, the Sabine River Authority of Texas.

At the same time, State Sen. Gerald Long (R-Natchitoches) and Rep. Frank Howard (R-Many) have authored a bill in Baton Rouge that would appear to make it easier for the SRA to enter into contracts providing for the sale of water outside Louisiana.

Capitol News Service also has obtained a cryptic email from SRA Executive Director Jim Pratt to Long, Sen. John Smith (R-Leesville), Reps. James Armes, III (D-Leesville) and Howard which cautions the legislators to "Please keep the money split CONFIDENTIAL."

That sentence was in bold face type and the accompanying attachment revealed that the Texas SRA would receive 30 percent of the revenue from the sale of Louisiana's share of water from the reservoir-up to $14.67 million per year.

Another attachment consisted of a slide presentation that provided statistics on water flow, revenue and future utilization of the Toledo Bend Reservoir.

Accompanying that Jan. 27, 2011, email to Long were two attachments that Pratt said "summarizes the proposal" by Toledo Bend Partners (TBP), a partnership comprised of shipbuilder Donald "Boysie" Bollinger of Lockport, banker Aubrey Temple, Jr., of DeRidder and San Antonio auto dealer B.J. "Red" McCombs.

Capitol News Service obtained the email through a routine public records request to the SRA of Louisiana.

Long's bill would retain the provision that the written consent of the governor would be required for such contracts and adds that the written concurrence of two-thirds each of the local governing authority of each parish (police juries and parish councils) and municipality in the territory of the Sabine River Authority would be required.

The bill has been assigned to the Senate Natural Resources Co mmittee.

Pratt's email included two attachments which comprised a slide presentation that depicted the average inflow into Toledo Bend Lake from 1969 through 2010 with a maximum drawdown of 75,000 acre-feet per month.

The TBP proposal, submitted in 2011, proposed purchasing up to 600,000 acre-feet per year from SRA.

A single acre-foot of water is comprised of approximately 325,850 gallons.

The proposed sale of 600,000 acre-feet per year at 25 cents per thousand gallons-or about $81.50 per acre-foot would generate nearly $48.9 million annually, or up to $2.5 billion over the 50-years of the contract proposed by TBP.

The TBP proposal's cover letter alluded to the potential of "billions of dollars in incremental revenue" for SRA, area parishes, the U.S. Soil and Water Conservation District and the states of Louisiana and Texas.

No mention was made of the projected revenue windfall for TBP as the broker for the deal between SRA of Louisiana and Texas end users.

The estimated $48.9 million per year would be divided five ways, according to one of the attachments to Pratt's email, which was marked "Confidential." It has the Texas and Louisiana Sabine River Authorities getting 30 percent each ($14.66 million.

The remaining disbursement would have the State of Louisiana getting 20 percent, or $9.78 million, and the police juries in the SRA basin and the Soil and Water Conservation District receiving 10 percent each, $4.89 million.

Splitting that $4.89 million allocated for the police juries would be the parishes that make up the 560-mile-long Sabine River Basin: Caddo, DeSoto, Natchitoches, Sabine, Vernon, Beauregard, Calcasieu and Cameron.

Pratt said that even though SRA Louisiana has about a million acre-feet it may sell, and that TBP's proposal addresses the purchase of 600,000 acre-feet from SRA Louisiana, the plan was to allow SRA Texas to sell 300,000 acre-feet and SRA Louisiana 300,000 acre-feet.

"In lieu of that," Pratt said, "if Texas decides not to sell 300,000 acre-feet, SRA Louisiana would pay them (SRA Texas) not to generate electricity."

SRA Louisiana presently has contracts for the sale of 65,529 acre-feet per year, including sales water for hydro power generation and for hydro-fracking operations in the Haynesville Shale Field. The projected sales for the Haynesville Shale Field are 36,500 acre-feet per year.

"We would rather allocate water to water sales than to power supply," he said.

The slide presentation noted that the Louisiana SRA sale of water for hydro-electric generation generates 40 percent of the SRA-Louisiana revenue and that that agreement was scheduled to expire in 2018.

An additional 34 percent of the SRA-Louisiana revenue comes from the sale of water from the SRA Diversion System to the petro-chemical industry in southwest Louisiana.

The Diversion System, created by the 1970 Legislature as part of a program for utilization of the waters impounded in Toledo Bend Reservoir for the purpose of transporting and delivering water from the lower Sabine River to various petro-chemical industries in the Lake Charles area and for providing water for municipal use and irrigation requirements along the route.

The system consists of 35 miles of unlined, open channel canals, 4.4 miles of underground cement-coated steel pipelines, five control gates and three pumping stations. It has been instrumental in slowing the depletion of the ground water reserves in the Chicot Aquifer.

It is here, though that the waters get a bit murky, figuratively speaking, regarding the issuance of $10 million in revenue bonds.

First of all, the SRA did not run the mandatory legal advertisement on its intent to issue the $10 million in revenue bonds until Sept. 7, 2011, even though the State Bond Commission had already approved the measure at its June 16 meeting in Baton Rouge-nearly three months before.

The legal advertisement said that the bonds would be used to finance the acquisition of "any property or facilities which the Authority is authorized to acquire" and that the bonds would be secured by the sale of water to industrial customers by the Sabine River Diversion System.

The proposal submitted by TBP last November pursuant to SRA's request for proposals (RFP), however, indicated something quite different.

Buried deep in that 91-page proposal was a judgment signed by 11th Judicial District Court Judge Stephen B. Beasley of Sabine Parish.

The motion, filed by the SRA of Louisiana, sought-and received-a judgment establishing and declaring:
• Authorization of the issuance of the bonds and terms and provision(s) regarding security and payment of the bonds, and
• Legality and validity of a Water Reservation and Sale Agreement "to be executed by and between the Authority and Toledo Bend Partners."

The judgment further said that a "contradictory hearing" was held on Aug. 16, 2011, with the following persons present: Fred L. Chevallier (bond attorney), counsel to plaintiffs (SRA). It further said that no one appeared in opposition to the bond issue.

The authority's motion was subsequently approved and the judgment signed by Judge Beasley on Oct. 10, 2011, with no reference ever having been made of the legal ad saying the bonds would be secured by water sales from the Diversion System to the petro-chemical industry.

Pratt, when asked, dismissed the discrepancy between the legal advertisement, the Bond Commission approval before the ad ran and the judgment that pledged sales to TBP from the reservoir instead of to industries in Southwest Louisiana from the Diversion System.

"We were already moving forward with the sale to the petro-chemical industry when TBP made its proposal," he said. "As I understand the legalities, if we pledge the contract with public works and successfully go through the validation process, there can be no legal challenges at a later date." He also said the SRA Louisiana "had to provide something as security in order to keep the state from getting the money."

He said TBP picked up the cost of the bond validation process.

Asked about the necessity of involving a broker to engineer the water sale, he said governmental agencies generally do not address problems until they become critical and the investors in this case (TBP) felt they could build the pipeline and cities like Dallas would not face the necessity of passing bond issues to do so later.