The 15th Court of Appeals has reversed a Travis County district court ruling that substantial evidence did not support a TCEQ order granting a wastewater permit to residential property developers in Williamson County.
AIRW 2017-L.P.; 600 Westinghouse Investments, LLC; 800 Westinghouse Investments, LLC; Texas Commission on Environmental Quality; and Jonah Water Special Utility District v. City of Georgetown, Texas (No. 15-24-00132-CV; December 30, 2025) arose from a dispute over permitting a new wastewater treatment plant in Williamson County. AIRW and the two Westinghouse entities are developing 128 acres in the City of Georgetown’s ETJ for housing. The developers contacted a number of wastewater service providers, including the city, which informed them that it would provide services contingent on annexation of their properties. Eschewing that prospect, AIRW applied to TCEQ for a wastewater permit to build and operate its own facility. The executive director issued a draft permit, to which the city and Jonah Water Special Utility District objected. The permit went to a contested case hearing, but before the hearing, Jonah Water SUD and the developers entered into an agreement whereby Jonah would operate the new plant. After the hearing, two ALJs recommended issuance of the permit. The commission did so. The city sought judicial review in Travis County district court, which decided in favor of the city based on the permit’s noncompliance with Texas’s regionalization policy. The developers, Jonah, and TCEQ appealed.
In an opinion by Justice Farris, the court of appeals reversed and rendered. Appellants argued that substantial evidence supported the TCEQ’s order issuing the permit and, specifically, that the permit complied with state policy “to encourage and promote the development and use of regional and area-wide waste collection, treatment, and disposal systems ….” § 26.081, Water Code. TCEQ adopted rules implementing this policy, but also recognized that exceptions could be made if the applicant (1) requested service from wastewater treatment facilities within 3 miles and the request was denied, or (2) demonstrates that an exception should be granted based on costs, affordable rates, and other relevant factors. The developers argued that the city denied their request to provide service. The city disagreed with that and further contended that TCEQ erred in considering the diminution in value of the developers’ residential property development as a cost to AIRW to connect to the city’s system.
The court determined that the developers produced substantial evidence in support of an exception based on cost. Their expert estimated that the cost of compliance with the city’s annexation demand would reduce the value of the properties by $20 million, based on the amount of taxes, fees, and zoning compliance that would come with it. According to the expert, the city also demanded that some of the developers’ property be used for commercial purposes, creating another set of costs and value losses. Instead of paying upwards of $20 million for service, the expert concluded, the developers could build their own plant for $5 million. The developers’ appraiser agreed with this estimate, observing the significant increase in property tax costs should the property become part of the city. The court held that this was “more than a scintilla of evidence” in support of the TCEQ’s order.
In response to the city’s argument that diminution in value was “irrelevant” to the state’s regionalization policy and that TCEQ’s consideration of such was “arbitrary and capricious,” the court observed that the statute gives broad discretion to TCEQ to implement the policy, almost to the point of permissiveness. The common meaning of “cost,” moreover, includes opportunity cost such as the $20 million diminution in value. TCEQ thus acted reasonably in considering diminution in value as a “cost” under its rules. The same went for consideration of potential zoning costs, which the city unsuccessfully argued was outside TCEQ’s purview.
The court went on to find that substantial evidence supported the TCEQ’s determination that the permit is protective of water quality and existing uses of receiving waters, complies with degradation policies and procedures, is protective of human health, and complies with applicable nuisance odor requirements. The evidence showed that TCEQ conducted the necessary modeling and incorporated appropriate standards, monitoring, and testing requirements in the draft permit. In other words, both the applicant and the agency followed the rules, while the city sought to invalidate the permit based on factors not cognizable under the agency’s statutory authority or its rules. The opinion contains a brief discussion of what constitutes a “park” for purposes of TCEQ’s review of a discharge permit’s effect on “the recreational value of the park, playground, or schoolyard.” The developers planned a green-space but disputed that it constituted a “park” for purposes of the statute. The court agreed, reading the statute as focusing on “recreational value.” There was no evidence that the green-space at issue would be “recreational,” much less a “public park.” The court reversed and rendered judgment affirming TCEQ’s order granting the permit.
