P.O. Box 13231, 1700 N. Congress Ave. Austin, TX 78711-3231, www.twdb.texas.gov Phone (512) 463-7847, Fax (512) 475-2053

Our Mission

To provide leadership, information, education, and support for planning, financial assistance, and outreach for the conservation and responsible

development of water for Texas

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Board Members

Bech Bruun, Chairman │ Kathleen Jackson, Board Member │ Peter Lake, Board Member

Jeff Walker, Executive Administrator

TO: Board Members THROUGH: Jeff Walker, Executive Administrator Todd Chenoweth, General Counsel Jessica Zuba, Deputy Executive Administrator, Water Supply and

Infrastructure Mireya Loewe, Manager, South Team, Regional Water Project Development FROM: Joe Reynolds, Assistant General Counsel DATE: August 24, 2017 SUBJECT: North Alamo Water Supply Corporation Request for Partial Release on Its

Certificate of Convenience and Necessity ACTION REQUESTED Consider approving by resolution a request from North Alamo Water Supply Corporation (Hidalgo County) for a partial release of lien on a portion of its Certificate of Convenience and Necessity (CCN) and authorize the Executive Administrator to take all necessary actions to give effect to this approval. BACKGROUND On November 6, 2014, through adoption of Resolution No. 14-98, the Texas Water Development Board (TWDB) approved a loan to North Alamo Water Supply Corporation (Corporation) in the amount of $646,000 from the Economically Distressed Areas Program to finance improvements to its wastewater system. The Corporation closed this loan on August 18, 2015, under a loan agreement dated August 14, 2015. The outstanding balance of the loan is $593,200. The loan is secured by and payable from a first lien pledge of the revenues of the Corporation’s system and further secured by a first mortgage lien on the Corporation’s water and wastewater system. KEY ISSUES The Corporation has requested that the TWDB release its lien and security interest on, and approve the decertification of, a portion of the Corporation’s CCN Number 10553 (water) and transfer the service area involved to the City of Mercedes. The area includes all existing pipe, fittings, services, connections, and fire hydrants located within the City limits of

Board Members August 24, 2017 Page 2

Mercedes along U.S. HWY 83 between Mile 8 North and U.S. Business HWY 83 and between Mile 1 East and Mile 3 East at the southeast edge of the Corporation’s CCN boundary. Seventy-five customers in the area are currently served by the Corporation according to the application to amend the CCN submitted to the Public Utility Commission (PUC). The Corporation and the City of Mercedes have entered into an Agreement for Buyout of Service Area. As security for the TWDB loan, the Corporation filed a Deed of Trust and Security Instrument granting the Board a lien on the Corporation’s water system, including the Corporation’s CCN issued by the PUC, pursuant to Section 2.1(f) of the Deed of Trust. Section 2.04.A. of the Loan Agreement between the Board and the Corporation provides that the Corporation will not encumber, pledge, or otherwise impair its title to the land used for the System or interests therein, or improvements and facilities of the System, without prior Board approval. The Corporation has notified the TWDB through its attorney of the transfer and the proceedings at the PUC. It has also provided a copy of the buyout agreement with a map of the area being transferred. With more than 43,000 connections in its system, the impact to the system of the loss of customers in the portion of the CCN being transferred is insignificant (less than 1 percent). Thus, the release of the property from the Corporation’s CCN area will not have a negative impact on the Corporation’s revenues or its ability to meet its existing debt obligations. The Public Utility Commission approved the application on May 5, 2017. Rural Utilities Service, United States Department of Agriculture, granted its consent on May 26, 2016. The Corporation is seeking similar consent from CoBank, which also holds notes from the Corporation. RECOMMENDATION The Executive Administrator, therefore, recommends, by resolution, approving the request by the North Alamo Water Supply Corporation for a partial release of lien and the transfer of a portion of its Certificate of Convenience and Necessity No. 10553. The Executive Administrator further requests authorization to take all necessary actions to give effect to this approval. Attachment: Resolution (17- )

A RESOLUTION OF THE TEXAS WATER DEVELOPMENT BOARD

APPROVING A REQUEST FROM NORTH ALAMO WATER SUPPLY CORPORATION

FOR A PARTIAL RELEASE OF LIEN

(17- )

WHEREAS, the Texas Water Development Board (TWDB), currently owns the following debt obligation of the North Alamo Water Supply Corporation (Corporation): L1000335 in the amount of $646,000; and

WHEREAS, the Corporation’s debt obligations are secured by an executed and

recorded Deed of Trust and Security Agreement (Deed of Trust), pursuant to which the Corporation granted to the TWDB a security interest in its properties and assets, including all title and interest of the Corporation in, to, and under any and all licenses, preliminary or final plat approvals, permits, warranties, and wastewater discharge capacity attributable or allocable to all or any portion of the real property, the improvements, and any other property, both real and personal described in the Deed of Trust; and

WHEREAS, the Corporation is the holder of Certificate of Convenience and Necessity Nos. 10553 (CCN) issued by the Texas Commission on Environmental Quality (TCEQ), and maintained by the Texas Public Utility Commission (PUC), an agency of the State of Texas, which authorizes the Corporation to provide retail water and wastewater services to the lands described therein; and

WHEREAS, the Corporation has entered into an Agreement for Buyout of Service

Area (Buyout Agreement) with the City of Mercedes, and has applied to the PUC for authorization to amend both of the parties’ CCNs, in order to transfer a portion of the Corporation’s service area to the City; and

WHEREAS, pursuant to the Buyout Agreement, the Corporation shall convey to the

City the Corporation’s service area more particularly described in Exhibit C-1 of the Buyout Agreement (Property); and

WHEREAS, the Corporation has requested that the TWDB release any lien or

security interest created under the Deed of Trust to the extent it includes the Corporation’s rights to provide retail water service to the Property under the CCN, and otherwise consent to the release of the Property from the Corporation’s CCN; and

WHEREAS, the TWDB finds that in its opinion the security pledged by the

Corporation will be sufficient to meet the debt obligations of the Corporation, and that a limited release of the TWDB’s lien and security interest created under the Deed of Trust in the Corporation’s right to provide retail water service to the Property under the CCN will not compromise the security offered by the Corporation nor impair the Corporation’s ability to meet its debt obligation; and

WHEREAS, the TWDB further finds that it is in the public interest for the TWDB to grant a partial release of lien in the Corporation’s right to provide retail water service to the Property under the CCN and to permit the Corporation to release the Property from its CCN;

NOW THEREFORE, based on said considerations and findings, the Texas Water Development Board resolves as follows:

1. The TWDB approves the release of lien and security interest created under the Deed of Trust in the Corporation’s right to provide potable water service to the Property under the CCN; and consents to the transfer of the Property to the City of Mercedes under its CCN. 2. The Executive Administrator is authorized to execute any documents necessary to give effect to this Resolution.

Such approval is conditioned as follows: 1. The Corporation will pay any and all costs of documentation and filing of the partial

release of lien; and 2. The Corporation must provide to the TWDB copies of all relevant documents

regarding the partial release of lien and the amendment of the Corporation’s CCN.

APPROVED and ordered of record this the 7th day of September, 2017.

TEXAS WATER DEVELOPMENT BOARD

______________________________________________

Bech K. Bruun, Chairman DATE SIGNED: _____________________________ ATTEST: ___________________________________________ Jeff Walker Executive Administrator