Title
Consider and take action on a resolution authorizing an agreement between North Harris County Regional Water Authority and the City of League City for the purchase and sale of Groundwater Series B Credits in an amount not to exceed $25,038 (Director of Public Works)
Background:
Approval of this item will authorize an agreement between North Harris County Regional Water Authority and the City of League City for the purchase and sale of Groundwater Series B Credits in an amount not to exceed $25,038.
The City is located within Area 1 of the Harris-Galveston Subsidence District (HGSD), which has the most restrictive groundwater regulations due to its proximity to the coastal areas of Harris and Galveston counties. Public water systems within Area 1 are limited to using groundwater for no more than 10 percent of their annual water production. Water usage exceeding this threshold is subject to groundwater disincentive fees, which are currently $12.52 per 1,000 gallons.
In the early 1990s, HGSD established the Water Wise Conservation Program to encourage water conservation through local public schools. Under this program, public water systems may sponsor students to participate in water conservation education and, in return, receive groundwater credits. The current sponsorship cost is $40 per student, with each sponsorship generating a credit equivalent to 84,000 gallons of groundwater. For FY 2026, the City sponsored 298 students from Clear Creek ISD and Dickinson ISD schools located within League City. The number of available sponsorships varies each year based on HGSD allocations.
Through many years of participation in this program, the City has accumulated approximately 721.68 million gallons of groundwater credits. These credits serve as an emergency reserve that can be used if the City's surface water supply is disrupted. Potential scenarios include failures of the 42-inch or 39-inch transmission mains that deliver treated surface water, or operational interruptions at the Southeast Water Purification Plant (SEWPP) in South Houston or the Thomas Mackey Water Treatment Plant (TMWTP) in Texas City.
The proposed sale of groundwater credits originated from a previous City Council request to evaluate opportunities to sell excess credits that were approaching expiration in order to recover a portion of the City's investment. Although the sale of groundwater credits is common, no interested buyers had been identified until 2026, when the North Harris County Regional Water Authority expressed interest.
The proposed transaction would sell approximately 173,997,600 gallons of the City's current inventory of 721,680,000 gallons of groundwater credits. Following the sale, the City would retain approximately 547,682,400 gallons of groundwater credits, providing an estimated 45-day emergency groundwater supply based on the City's current average water demand of 12 million gallons per day (MGD).
Basis of Proposed Cost
The proposed sale price is based on the City's historical investment in acquiring groundwater credits through participation in the Water Wise Conservation Program, Public Works Utilities outreach activities, and replacement of the Captain H2O mascot. Staff calculated the cost using the City's three-year average program expenditures, resulting in a proposed unit cost of $0.1439 per 1,000 gallons. This methodology was developed based on recommendations from organizations experienced in the groundwater credit market to establish a reasonable and supportable basis for pricing the credits.
Cost Calculation
173,997,600 gallons ÷ 1,000 = 173,997.6 (1,000-gallon units)
173,997.6 × $0.1439 = $25,038.25
The proposed unit price is also consistent with historical groundwater credit market values, which have ranged from approximately $0.10 to more than $1.00 per 1,000 gallons, depending on market conditions at the time of sale.
Attachments:
1. Proposed Resolution
2. Exhibit A - Purchase and Sale Agreement
3. GW B Credits Available for Sale (173.99 MG)
4. Remaining 45-Day Groundwater Credit Inventory
5. Water Wise Conservation Program & Public Outreach Three-Year Cost Summary
FUNDING
{X} Funds in the amount of $25,038 to be deposited into Utility Fund Miscellaneous Income account #1020-44000.
STRATEGIC PLANNING
{X} Addresses Strategic Planning Critical Success Factor #1 - Develop & Maintain Infrastructure