(a) A municipality that owns and operates its water distribution system may contract with an individual, firm, or corporation that operates without profit to make available for delivery to and use by the municipality all or part of the raw or treated water to be used for the municipal water distribution system. The service to be provided by the supplier may include the holding of water in reserve to serve needs of the municipality, and charges to the municipality under the contract may include compensation for this service.
(b) The contract may be for any duration to which the parties agree and may provide for renewal and extension.

(c) Contractual payments required solely from municipal water system revenue are an operating expense of that system. The municipality shall set its rates and charges to users of the municipal water system at a level sufficient to pay the maintenance and operating expenses of that system as provided by § 1502.057, Government Code, and to provide for payment of principal of and interest on any revenue bonds of the municipality payable from water revenue.
(d) If a contract with a term of more than one year obligates the municipality to pay the consideration from tax revenue, involves the leasing to the supplier of a major part of an existing water production or supply facility belonging to the municipality or involves the right to operate a major part of such a facility, or restricts the municipality from obtaining water from another supplier, the contract is not effective unless approved or authorized at an election on the question.
(e) If Subsection (d) is not applicable, an election is not required. The governing body of the municipality may, however, order an election on the question before approving the contract.
(f) An election under this section shall be held to the extent practicable in the same manner as an election for the issuance of municipal bonds under Chapter 1251, Government Code.