San Jacinto River Authority, Enemy Of The People: Part 3 Of 5 – Efforts to monopolize retail water sales, driving up residential water bills

San Jacinto River Authority, Enemy Of The People: Part 3 Of 5 – Efforts to monopolize retail water sales, driving up residential water bills

Image: While Monopoly is a fun game, it’s against the law to monopolize under the federal Sherman Antitrust Act, the basis of Quadvest, L.P.’s and Woodland Oak Utility’s lawsuit against the San Jacinto River Authority (SJRA). It’s unclear whether Parker Brothers sought to depict SJRA General Manager Jace Houston in the picture in the middle of the Monopoly board.

The Golden Hammer Staff Reports

Conroe, Magnolia, and Houston, November 13 – United States District Judge Vanessa Gilmore has ordered the anti-monopoly lawsuit, which Magnolia-based utility companies Quadvest, L.P. (Quadvest), and Woodland Oaks Utility, L.P. (WOU), have brought against the San Jacinto River Authority (SJRA), to proceed in the United States District Court for the Southern District of Texas, Houston Division. SJRA has sought a dismissal of the lawsuit against it, but Judge Gilmore refused SJRA’s request in a 21-page opinion.

Judge Gilmore noted that SJRA admitted in its motion to dismiss filed with the federal court that its actions purposefully sought to replace competition with government regulation.

Quadvest and WOU brought the lawsuit against SJRA alleging that SJRA has attempted to monopolize by seizing control of water sales and forcing municipalities and consumers to use SJRA’s surface water. The primary mechanism by which SJRA attempted to monopolize water sales, and thereby drove water prices up enormously, was by seizing control of competing groundwater production through groundwater regulatory control under the auspices of the Lone Star Groundwater Conservation District (LSGCD), which SJRA used to control before 2018 when the Texas Legislature allowed Montgomery County citizens to elect the LSGCD Board rather than having an appointed LSGCD Board.

According to the plaintiffs, after SJRA successfully got LSGCD to overregulate large groundwater producers, SJRA then forced utility companies and municipalities to enter into long-term surface water purchase contracts with SJRA. Those exorbitantly-priced long-term contracts provide the main explanation why Montgomery County water prices are so high for end-users.

According to the plaintiffs, after SJRA successfully got LSGCD to overregulate large groundwater producers, SJRA then forced utility companies and municipalities to enter into long-term surface water purchase contracts with SJRA. Those exorbitantly-priced long-term contracts provide the main explanation why Montgomery County water prices are so high for end-users.

The plaintiffs allege that SJRA entered into horizontal price fixing agreements to prevent competition with SJRA’s surface water sales. Rather than trying to compete with groundwater producers, SJRA tried to use LSGCD to regulate them out of business.

Judge Gilmore held that Quadvest and WOU have alleged sufficient factual allegations to satisfy the conspiracy and market elements of an antitrust claim under federal law.

Statute of limitations

SJRA forced utilities and municipalities to enter into most of those contracts in 2010. Therefore, SJRA argued to Judge Gilmore than the four-year statute of limitation period already expired before Quadvest and WOU brought their lawsuit.

Gilmore rejected SJRA’s argument. Judge Gilmore ruled “…because the damages caused by the alleged conspiracy was not provable with certainty at the time of the contract formation, a new cause of action accrues each time Defendant [SJRA] collects monthly fees” under the surface water sale contracts.

State-action immunity

SJRA argued to Judge Gilmore that, as a subdivision of the State of Texas, its actions should be immune from a claim under the Sherman Anti-Trust Act. Judge Gilmore, however, noted in her ruling that state-action immunity would protect a monopolist only if it occurred “‘pursuant to a clearly articulated and affirmatively expressed state policy’ to replace competition with regulation…”

Judge Gilmore quoted SJRA’s motion in which SJRA asserted “the anticompetitive effect [of SJRA’s actions] was the foreseeable result of what the State had authorized “SJRA to do.” In other words, SJRA intended to destroy competition!

The problem for SJRA, however, is, as Judge Gilmore pointed out, SJRA failed “to demonstrate that the SJRA’s enabling statute authorizes SJRA to enter into contracts regulating competition for raw water or…use of groundwater.” That ruling is extraordinarily important, because all of SJRA’s actions to destroy groundwater competition by forcing overregulation of groundwater were entirely outside of SJRA’s statutory authority as a State agency.

The problem for SJRA, however, is, as Judge Gilmore pointed out, SJRA failed “to demonstrate that the SJRA’s enabling statute authorizes SJRA to enter into contracts regulating competition for raw water or…use of groundwater.” That ruling is extraordinarily important, because all of SJRA’s actions to destroy groundwater competition by forcing overregulation of groundwater were entirely outside of SJRA’s statutory authority as a State agency.

Judge Gilmore held “These provisions – and the enabling statute [of SJRA] generally – omit any afirmative contemplation that SJRA is authorized to displace or regulate competition in the wholesale raw water market.

SJRA’s extinction

SJRA faces extinction on several fronts.

First, SJRA faces its “sunset” review before the 87th Texas Legislature early next year.

Second, SJRA has several lawsuits pending against it for its decision to unleash a torrent of water in August, 2017, from the Lake Conroe Dam during Tropical Storm Harvey. Homeowners who suffered flooding without any warning are the plaintiffs in those lawsuits mostly pending in Harris County.

Third, SJRA now faces this antitrust lawsuit by Quadvest and WOU.

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