Friday, January 23, 2015

Response to Electro Purification Letter

January 19, 2015
The Honorable Burt Cobb, County Judge
Hays County Courthouse
111 E. San Antonio St., Ste. 300
San Marcos, Texas 78666

The Honorable Debbie Gonzales Ingalsbe, Commissioner, Pct. 1
Hays County Courthouse
111 E. San Antonio St., Ste. 304
San Marcos, Texas 78666

The Honorable Mark Jones, Commissioner, Pct. 2
P.O. Box 1180
5458 FM 2770 at Crystal Meadow Drive
Kyle, Texas 78640

The Honorable Will Conley, Commissioner, Pct. 3
P.O. Box 2085
14306 RR 12, Suite 11
Wimberley, Texas 78676

The Honorable Ray Whisenant, Commissioner, Pct. 4
195 Roger Hanks Parkway
Dripping Springs, TX 78620

    Re: Electro Purification LLC's water development activities in Hays County

Dear Judge Cobb and Commissioners:

    We are writing to provide you with some factual background regarding the activities of
Electro Purification, LLC in Hays County, in response to the recent splash of disinformation
circulating within the County. Electro Purification prides itself in its corporate citizenship, and
believes in the benefits of informed decision making.

    We are a small company focused on providing wholesale water supplies to communities
looking to meet immediate short falls in their water supply inventories and provide at least a ten
to fifteen year bridge to facilitate the individual customer communities with the opportunity to
develop longer term water supplies. Our water source supplies are designed to be capable of
contributing to each community's water supply inventory over a longer period of time than
simply the bridge period, particularly when coupled with the longer term supply developed
during the bridge period. Properly managed they will be capable of being utilized in perpetuity.
 Electro Purification is selective in the markets it seeks to provide water to for multiple
reasons. First, our objective is to address identifiable needs in smaller markets. In addition to
meeting the known water supply need, we find that our projects aid the local water supplier by
assuming the risk of the capital investment associated with the development of the project, and
convert it into a much more palatable cost capable of being incorporated into period rate
increases of the water customer to its end-users.

   We ourselves are risk adverse in our investment strategy. Accordingly, in addition to
marketing to customers with a quantifiable need, we identify our water supply based upon its
potential capability of meeting the projected demand on a sustainable basis. We do not speculate
about the water. Instead, we rely upon professional advice from qualified geoscientists and
hydro geologists knowledgeable of the groundwater in the area based upon a proven track record
of drilling and study of the region.
 Once we have identified both the potential customer and water supply source, we initiate
our land acquisition through long term groundwater leasing with local landowners overlying the
identified groundwater source. Both our groundwater leases and our water supply contracts
contain what we call our "proven capacity" clause. Specifically, the lease provides an exit
mechanism if the results of well testing performed on the property demonstrates that the property
is not capable of producing a sustainable volume of water necessary to participate in the project.
Similarly, our water supply contracts all include a "feasibility period." This contract term allows
us to work with our hydrogeologists to develop adequate water supply sources to meet the
contractual commitments to our customers. In particular, it allows us to acquire more additional,
and/or different, properties for inclusion in the project as necessary to both produce the volume
of water necessary to meet our contractual commitments as well as provide buffer zones for our
wells to minimize potential impacts to and from neighboring landowners.

   Another feature of our business model is the fact that our wells are deeper that those
customarily drilled in Hays County for domestic and livestock purposes, as well as use for
irrigation of crops. Based upon our research, many of the domestic wells, as well as small
agricultural wells, drilled in Hays County are completed in the Upper Trinity Aquifer at depths
ranging from 0 feet to approximately 600 feet below surface elevation. For this reason, we
complete our wells in the Middle Trinity Aquifer. In fact, most all of our production occurs from
the base of the Middle Trinity Aquifer, also known as the Cow Creek Formation, at depths
ranging from 800 feet to 900 feet below surface elevation.
  Not discussed in the recent wave of fear-mongering propaganda is the fact that there is a
hydraulic disconnect between the Upper and Middle Trinity Aquifers. We often allow our
landowner-lessors to continue to produce groundwater from the Upper Trinity Aquifer on our
leases for their beneficial use, because of our confidence in the local hydrogeology and the fact
that the Upper and Middle Trinity Aquifers have little to no interaction.

    Electro Purification is mindful of the role of groundwater districts in the management of
the State's groundwater resources. To this end, we have an excellent track record of dutiful
compliance with all applicable groundwater regulation. Additionally, even in locations of
potential groundwater projects where groundwater regulation is not in place, we remain mindful
of the principles of groundwater management traditionally implemented by local groundwater
district to protect and conserve groundwater and prevent waste while facilitating the maximum
beneficial use of the resource. According, we site our wells with prior knowledge of the location
of property lines on our groundwater leases, as well as the proximity to any neighboring wells,
particularly if they appear to have been completed in a formation where we plan to complete our
wells and produce groundwater. We do not operate like irresponsible teenagers whose parents
left them at the house, along with the car keys, for the weekend unsupervised.
  To this end, we also want to dispel the rumor that Electro Purification we will be turning
on our pumps and immediately producing almost 6 million gallons a day ("MGD") from the
area. In addition to the other safeguards in our business model which require we prove-up water
available before implementing any contract and commencing operations, all of our contracts
contemplate a growth curve over time. With respect to our contracts for production on the
Middle Trinity Aquifer in Hays County, we are looking at "ramping up" our production over a
ten year period. This planned growth will allow us and our customers to both observe the
Aquifer's responses to our production, and other pumping in the area, but to respond to any
potentially adverse impacts. Again, Electro Purification prides itself in our Stewardship of the
resource as well as our commitment to be here for the long-term.

    We are also aware that there is some concern about possible impacts from our proposed
well field on existing wells in the Middle Trinity Aquifer. For this reason we have evaluated the
benefits of developing a mitigation program to address impacts, if any, of our project. We are
working with our hydrogeologists to identify and evaluate the potential area that could be
influenced by production from our project to develop potential mitigation programs, both
prophylactically and in the event there are any documentable impacts from the project. We plan
to discuss these program plans with other hydrogeologists knowledgeable of the Middle Trinity
Aquifer in the region including local groundwater districts in the area.

    Electro Purification is also mindful of the property rights concept associated with
groundwater leasing and production. This includes the lawful right of local landowners to lease
their property for a profit in the form of payment of bonuses and royalties associated with our
exploration for and production of groundwater, as well as the right to exercise the rule of capture.
We do not, however, abuse these rights. We do not lease small "postage stamp" size tracts with
the intent to over pump them producing l 0 to 20 or more times the number of acre-feet of water
per acre of land acquired. Instead, we look for larger tracts of land that will support both a fair
acre-foot to acre ratio and provide a buffer to ameliorate potential impacts to neighboring
landowners. We also try to make our projects community assets by engaging and leasing, or
attempting to lease, land from multiple landowners who will benefit from participation in the
project. The additional acreage also provides us with a buffer against competing production.

    Finally, it is imperative to recognize that Electro Purification selects its potential well
field locations based upon proximity io its potential customer market and groundwater
availability - not the existence or non-existence of a groundwater district. Much "hoopla" has
been made about our proposed well field along Hwy 150 approximately 5.5 miles outside of
Wimberley in western Hays County because it is in a so-called "unregulated area." The term has
morphed from a simple description of the fact that there is no groundwater district overlying the
area, to a label that we are like thieves in the night who snuck onto the scene and set up shop to
steal groundwater belonging to someone, rather than produce groundwater owned by the
landowners from whom we lawfully have negotiated and secured groundwater leases.

   Nothing could be further from the truth. As noted above, Electro Purification includes in
its groundwater leases an exit mechanism to be exercised in the event the groundwater beneath a
tract of land proves to be unsatisfactory for purposes of its inclusion of in a sustainable
groundwater supply project. While the specific language of the provision can vary slightly from
lease to lease based upon specific negotiations with the affected landowner, the basic principal
remains constant. Specifically, Electro Purification secures the right in each of its leases to drill
test wells on the property. We then conduct aquifer testing, also known as "pump tests", on those
wells to determine the characteristics of the aquifer, as well as confirm the presence of any
geologic features such as faulting that our Hydrogeologist(s) may have identified in their review
of available mapping or logs of neighboring wells as part of our due diligence. During these
pump tests we also observe the impacts, if any, to neighboring wells. Based upon the results of
these tests we evaluate the potential success of the individual well, and the well field as a whole,
to provide a sustainable supply capable of satisfying Electro Purification's contractual
obligations without harming the Aquifer. If the results are not satisfactory, our options are (i) to
secure new or additional leases and repeat the process of drilling the test well and performing the
aquifer testing, and/or (ii) elect to notify our potential customer that the project is not feasible
and terminate the contract.

   Yes, the area along Hwy 150 where we have taken leases currently is not within the
boundaries of a groundwater district. In that sense, the area is presently "unregulated" by a
groundwater district. Given the educational level of citizens of Hays County, it is astounding
that there is no recognition of the true meaning of "unregulated," much less why this particular
area is in fact "unregulated." The fact that the area in question is not within a groundwater
district has been a conscious decision both historically, and more recently in response to a
petition by the Texas Commission on Environmental Quality to incorporate the area, along with
other ''unregulated areas" within Hays, Comal and Travis Counties into one or more groundwater
districts. The latter efforts have failed, in part because the two existing districts with regulatory
authority over groundwater have either declined to exercise the initiative or express any desire to
acquire the area or they were unable to undertake the responsibility for one or more reasons.

    What is more important, however, is why the area is "unregulated." The reason is simple.
Unlike those areas of the Trinity Aquifer further west, e.g., the region along Hwy 12 where the
Hays Trinity Groundwater Conservation District exercises jurisdiction, there are significant
groundwater supplies present. Moreover, in the area of Electro Purification's Project, which is
outside of the Hill Country Priority Groundwater Management Area (POMA) created by the
TCEQ in 1990, the saturated portion of the aquifer is substantially thicker, and the associated out
crop area provides for enhanced recharge. A copy of the POMA map depicting the location of
Electro Purification's Project in relation to the two existing groundwater districts (Hays Trinity
GCD and the Barton Springs Edwards Aquifer District) is attached hereto as Appendix "A".

    Had the science established facts to the contrary, the area would have been made a part of
the Hill Country POMA, and/or a part of the Hays Trinity GCD or some other groundwater
district. In this instance, "unregulated" is a sign of good things.

            These good things include:

                1) Supplying water to approximately 25,000 water users in the Goforth SUD, City of Buda                 and the proposed Mountain City high-end residential development platted by Clark Wilson                 Homes; and

                2) Facilitating the continued growth of Hays County with an enhanced ad valorem tax base.
Electro Purification LLC
Isl Tim Throckmorton, Manager
Isl Bart Fletcher, Manager

Appendix "A"
Map of the Hill Country PGMA depicting the general location
of Electro Purification's Hwy 150 Project Site vis-a-vis the
Hays Trinity GCD & Barton Springs Edwards Aquifer Conservation District

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