NCPA - National Center for Policy Analysis


July 18, 2007

So-called "take-or-pay" water management systems used throughout Texas and the western United States essentially require member cities to buy a volume of water every year that equals a highest-usage year -- whether or not they actually use that much, says the Dallas Morning News.

Take, for instance, Plano and Richardson, Texas.   Heavy rainfall and drought conditions have alternated since 2001 -- a year when each city set a new maximum.  Since then, neither has reached its minimum water usage under take-or-pay, costing them millions:

  • Plano customers ended up spending $12.1 million on 17.5 billion gallons of water that was never used over five-year period that ended last summer.
  • Richardson residents paid $5 million for 7.1 billion gallons of unused water from 2001-06.

Many North Texas cities like Plano were still growing when they signed their current contracts, which can dramatically influence take-or-pay's impact:

  • Increasing numbers of homes and businesses each year means increased water consumption.
  • When that's the case, a city is more likely to set a new record usage amount and is less likely to fall prey to the mechanism that requires them to pay for water that is never used.
  • Growing cities such as Allen and Wylie, Texas, for example, end up with discounts; in 2006, their water cost plummeted from 97 cents to 23 cents per 1,000 gallons after they exceeded their required take-or-pay minimum.

But reforming the system for cities whose water usage has leveled off will be difficult. Changes must be approved by the district's board and then every member city council must approve the new way of business.  Negotiations are further complicated by their legal obligation to consult bond-holders before making any change to the take-or-pay provision.

Source:  Brandon Formby, "Cities paying millions for water no one uses," Dallas Morning News, July 17, 2007.


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