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City, Alon OK water agreement

April 25, 2012

After more than a month of negotiations, it appears the city of Big Spring and Alon USA — owner of the Big Spring Refinery — have been able to reach an agreement on raw water costs and price structures, as the city council voted unanimously Tuesday to approve a new contract between the two entities.

The contract — which was originally signed in 1957 — has been updated during the years, with the most recent revision in 1997, when it was agreed the oil company would reimburse the city the same price it paid to the water district, plus 5 cents.

However, the expenditure weighing over the proceedings during the past several weeks is the fixed cost the city pays to the Colorado River Municipal Water District, overhead that totals more than $3 million a year.

“Alon is planning to put in some water wells, decreasing the amount of water they use from the city,” Walker said. “That sounds good at first, however, it could have some drastic effects on our fiscal situation. They pay 25 percent of the overhead cost, which is based on how much water they use. However, if they decrease that amount drastically and cause that percentage to drop — say from 25 percent to 10 percent — the city will still have to pay the same amount to CRMWD.”

According to Walker, the contract approved by the council Tuesday will place a 20 percent floor on the amount of overhead Alon is required to pay.

“The contract stipulates Alon will pay a minimum of 20 percent of that fixed cost ... if, in fact, they have used 25 percent of our total purchases for that month, they will pay 25 percent of the fixed cost,” Walker said. “If they use 30 percent, they will pay 30 percent.

“They are also going to pay the given water district delivery rate plus 25 cents per 1,000 gallons. We will review the contract annually to see if there are changes that need to be made. It will be a long-term contract, but we will review it annually to see if there are revisions that need to be made, and, if so, we'll be bringing those back to the council at that time.”

Walker said the city's goal throughout the negotiations has been to reduce the municipality's risk if Alon should fall below the 20 percent mark in paying the fixed cost levied by CRMWD, a cost that must be paid before a single gallon of water is purchased by the city.

“What we've tried to do through these negotiations is try to mitigate some of the risk of Alon's consumption going down so much that they are no longer paying between 20 and 25 percent of that fixed portion of our water usage,” Walker told the council. “Mr. (Jimmy) Crosby has been very courteous and cordial to work with. Obviously, he's looking at Alon's profit margins while the city, on the other hand, is across the table looking at ways to mitigate our risk and keep from going up on the rates we have to pass along to our citizens.”

Walker said she feels the new contract will allow the oil giant to see a reduction in its production costs if it manages to cut its water usage without hamstringing the city in the process.

The city of Big Spring — along with numerous other cities in drought-stricken West Texas — has been faced with drastic cuts in water deliveries from CRMWD, forcing the municipality to enact water-use restrictions as part of its Drought Contingency Plan, which is currently in Stage 3.

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