The City of Allen transitioned from being a North Texas Municipal Water District (NTMWD) customer city to be a member city on February 4, 1999. Member cities get City Council appointed representation on the NTMWD Board of Directors, so these cities have a voice in the management and budget of the District. As a member city, Allen has two (2) appointed NTMWD board members.
All thirteen (13) NTMWD member cities sign the same contract. The contract requires the unanimous agreement of all member cities to be changed.
The contract specifies the methodology to allocate NTMWD water system costs between the member cities. This provision is commonly termed "Take or Pay" (TOP). The contractual allocation methodology requires member cities to pay for water consumption at the highest volume ever consumed. This is even if years subsequent to establishing a new high consumption level, less water was consumed than TOP. To state it slightly differently, should a City use less than their highest ever water consumption, they still pay for their entire water volume at the Take or Pay (TOP) level of consumption.
As some cities grew, their water use patterns may have declined, but they continued to pay for water that they did not continue to "take" from NTMWD. Cities like Richardson lost large manufacturing endeavors that used billions of gallons of water annually, leaving them with unused TOP. More recently, NTMWD member cities adopted water conservation plans that restrict landscape irrigation to twice weekly. This change drove about a ten to fifteen percent water use reduction in Allen. There are justifiable reasons why some NTMWD water system member cities consistently use less than their TOP water volume.
Since the early 2000's, member cities that for many years were operating well under their TOP, asked to have the TOP provisions revised to allow for a decrease in TOP. The most frequent method discussed to accomplish this is to abandon TOP and adopt a rolling annual average to bill for water use. Several of the cities supporting this change were operating for years well under their TOP. For example, the City of Plano has operated their system many years at 6 billion gallons under their TOP of about 26 billion gallons. Paying for water they were not actually taking caused their "effective" water cost to be much higher per thousand gallons than cities like Allen that were operating generally very near their TOP. Allen's TOP since 2011 has been 6,011,208,000 gallons. In Plano's case, they were paying many years for as much water not used "under their TOP" as Allen's entire TOP volume.
Through time, NTMWD and the thirteen (13) member cities tried to resolve the TOP issue to be fair to all member cities. Under all reallocation alternatives considered, faster growing cities (notably Frisco and McKinney) would pay more than in the past. The mature cities that consistently are under their TOP (Garland, Mesquite, Plano, and Richardson) would pay less than in the past. However, due to the need to attain unanimous member city agreement on changing the water contract, all efforts failed to achieve resolution.
On December 14, 2016, the cities of Plano, Richardson, Mesquite, and Garland filed a wholesale water rate case with the Public Utility Commission (PUC). They argued the PUC should cause a rate methodology change (contract change) because the NTMWD TOP cost allocation methodology unfairly allocated costs and was "not in the public interest."
After many legal processes and hearings took place at state level, on February 27, 2020, the PUC determined that the TOP methodology was not in the public interest.
The PUC's intent at that point was for all thirteen (13) member city litigation participants to negotiate a settlement before their PUC final order was completed. This became apparent in a PUC hearing on April 17, 2020. On that date, the PUC directed the member cities and NTMWD to jointly select a mediator, or the PUC would appoint a mediator of their choice to help resolve the issue. The PUC also had the options to request legislative guidance in the 2021 legislative session, or to immediately remand their "not in the public interest decision" to a State Administrative Law Judge to hear arguments about cost reallocation methodologies.
Since April 2020, water system member cities and the NTMWD negotiated in good faith to develop what is a unanimously accepted cost allocation strategy that the PUC would hopefully deem as being in the public interest.
The Take or Pay Resolution Proposal
The proposal moves the member cities to a 5-year rolling average method of allocating water system costs.
The proposal is termed the "8-Year Natural Drawdown and 5-Year Rolling Average" method. It gradually resolves the public interest issue. It also phases in the cost impacts and avoids the rate shock to cities that will pay more in the future if it was not phased in over time.
The impact of the current TOP methodology causes about a 36 percent difference in the effective cost of water between the highest and lowest paying member cities. By the end of the 13-Year transition period, this difference should drop to 8 percent.
The Eight Year Natural Drawdown Phase- FY21 to FY29
This Natural Drawdown period allows the gradual annual reallocation of take or pay from cities that finish the water year under their TOP volume to cities using more than their TOP volume. This gradually allows cities with historic underutilization of TOP to see their TOP reduced and "reassigned" to faster growing cities. The contract amendment details how this will be done. The present cost analysis of this eight (8) year phase shows that the effective cost of water "spread" between highest and lowest paying member cities may reduce from 36 percent to perhaps 20 percent.
The 5-Year Rolling Average Phase
After natural drawdown ends, introduction of rolling averaging will be phased in. The first year will set a new TOP by using average of each member city's the current year water use plus four years at the TOP set at the end of natural drawdown. The second year will set each member city's new TOP using two (2) year's actual consumption plus three (3) years of TOP set at the end of natural drawdown. The next three (3) years recognize one more year of actual use and one less year of the TOP set at the end of natural drawdown. By the end of this phase, modeling shows that the effective cost of water "spread" between highest and lowest paying member cities may reduce from 20 percent to perhaps just 8 percent.
At the end of the 13 (thirteen) year transition, the next year TOP amount for budgeting will be the average of every member city's actual consumption the last five (5) years.
The modeling of the current contract amendment estimates that from FY21 to FY30, the four (4) petitioning cities would see a cost reduction over the ten (10) years varying between $5.6 and $9.4 million. The nine (9) non-petitioning member cities would see water cost increases over the ten (10) years from $9.2 million (McKinney) to $400,000 (Princeton). Allen is estimated to pay a total of $5.3 million additional dollars over the first ten (10) years of transition.
The negotiated amendment to the NTMWD Regional Water Supply Facilities Contract captures this billing methodology change.
Both the contract change and the settlement agreement will become effective when the PUC dismisses or allows the withdrawal of the PUC rate case (Docket numbers 46662, 47863, 49043, and 50382) becomes final and non-appealable.
The NTMWD Board has approved the agreements (Exhibit A and Exhibit B) as attached in the Resolution. All member cities have agreed to the terms and, in the last few weeks, many of those member cities passed the same resolution approving the settlement agreements, with the remaining cities to follow.