Developer to water utility: You hosed us!

A planned development in the fast-growing region between Austin and San Antonio is in danger of going under water if it doesn’t get some water, fast.

In a lawsuit filed last week, the owners of River Bend Ranch claim that Crystal Clear Special Utility District, their would-be water supplier, has failed to provide the water it agreed to, all while milking the developer for millions of dollars in infrastructure repairs.

HK Real Estate Development has spent more than three years trying to build a residential and commercial project on 668 acres in Hays County, just outside of San Marcos. But without water, the development cannot proceed, and the developers allege that Crystal Clear has pushed back its delivery date to 2024 while nearly quadrupling its costs. The developer says the situation is only possible because of the utility’s monopoly-like status.

“For nearly a decade, Crystal Clear has abused its monopoly position to extract exorbitant fees — even outright ransoms — from landowners who need water to develop their properties,” HK Real Estate’s lawyer writes in the complaint. The developer is now asking the court to help it leave Crystal Clear’s service area so it can draw water from the City of San Marcos instead.

The water utility’s alleged monopoly, which HK characterizes as a “gun Crystal Clear holds to captive landowners’ heads,” comes from its status as a special utility district. Texas uses these bodies to handle some local utilities, and Crystal Clear is the water provider for a 165-square-mile district spanning areas of Guadalupe, Comal and Hays counties.

The dispute between HK and Crystal Clear stems from a contract the previous landowner signed with the utility in 2019 to provide water to the parcels. In return for 2,000 living-unit equivalents worth of water — one unit is Crystal Clear’s estimate for the average household’s water consumption — the owners agreed to build the infrastructure the utility would use to pipe the water to their land.

The developer, which inherited the contract after it purchased the land in late 2019, says it agreed to build new pipes and water storage to the tune of $2 million, and to pony up another $50,000 to reserve the water. But last year, Crystal Clear allegedly sent over a new engineering report that delayed the date it could supply the water to late 2023, and it increased the estimated costs of the system improvements from $2 million to $4.6 million.

Then, in October, Crystal Clear increased the improvement costs again to $7.6 million and delayed water delivery to Summer 2024 at the earliest. HK Real Estate claims the delay happened in part because Crystal Clear diverted the water it had reserved for River Bend Ranch to another user.

Last week, HK Real Estate petitioned the public utility commission to release it from Crystal Clear’s coverage area, alleging it breached its contract. As the commission considers that request, HK has asked the courts to declare that Crystal Clear has not provided it the water service it promised and that another utility can provide it water.

HK claims that Crystal Clear has a history of suing to prevent users from exiting its coverage area, thus necessitating this suit.

Water availability is a perennial issue in Texas real estate. The state estimates that water demand will increase from 17.7 million acre-feet a year to 19.2 million by 2070. In the same time span, water supply will decline nearly 20 percent to 13.8 million acre-feet. That leaves a shortfall of 5.4 million acre-feet. For context, that’s enough to submerge Austin in 31 feet of water.

The problem is particularly severe in areas between Austin and San Antonio like San Marcos. The I-35 corridor has seen explosive population growth, ​​but does not have many local water sources.

In July, the Edwards Aquifer Authority, one of River Bend Ranch’s planned water suppliers, told Crystal Clear that it must immediately reduce its pumpage from the aquifer by at least 35 percent. The utility instituted rationing, allowing customers just one day of landscape watering per week and no landscape watering between the hours of 10 a.m. and 8 p.m..

Crystal Clear applied late last year to levy an impact fee of $2,900 per connection to recover the costs of capital improvements and facility expansions due to new developments coming online in the area.

Representatives for Crystal Clear did not respond to requests for comment.