(a) This section applies notwithstanding any other provision of this chapter or other law.
(b) In this section and Section 8503.031:
(1) “Municipality” includes a municipally owned utility.
(2) “Water service area” means the area in which the authority is authorized to use, distribute, and sell water on January 1, 2001.

(c) Subject to the limitations and restrictions in this section, the authority may enter into a written contract with a municipality located outside the water service area to distribute and sell water to the municipality.
(d) In addition to the authority’s applicable water rate, the authority shall charge a municipality a surcharge determined by the board according to the terms of the contract to enable the authority to develop and manage water resources sufficient to address the projected needs of the authority’s water service area and the needs of the municipality to the extent agreed in the contract. The contract must provide that the surcharge be sufficient to allow the authority to recover all capital construction costs incurred by the authority under this section. The board’s determination of the surcharge is not subject to review or modification by any regulatory agency or administrative authority.
(e) The use or reservation of water under a contract authorized by this section may extend for a base period of not more than 50 years. A contract may provide an option to renew for not more than an additional 30 years. An option to renew must require that the municipality progressively reduce the amount of water reserved or used by the municipality during the last 10 years of the renewal term and require that the rate paid by the municipality immediately increase by a factor of five if the municipality does not make the required reduction. A contract must provide that the municipality is not entitled to further reservation, use, or delivery of water from the authority at the conclusion of the contract.
(f) A contract authorized by this section must require that the then current rate paid by the municipality immediately increase by a factor of five if:
(1) the municipality initiates legal proceedings in a court or regulatory agency to obtain:
(A) an increase in the amount of surface water taken by the municipality under this section; or
(B) an extension of either the base or renewal periods under Subsection (e); or
(2) the authority is compelled by any authority to reserve, sell, or make available to the municipality more than 150,000 acre-feet of water per year or to reserve, sell, or make available to the municipality water beyond the base and renewal periods under Subsection (e).
(g) The contract must provide that within the water service area the authority must own any personal property, fixtures, or appurtenances that are used for making available, diverting, or delivering water to a municipality under a contract authorized by this section.
(h) Water to be provided under a contract authorized by this section may not be diverted from the Colorado River at diversion points located on the reservoirs that, on May 16, 2001, are owned and operated by the authority upstream of Mansfield Dam. Water to be provided under a contract authorized by this section may be diverted only from off-channel reservoirs built downstream of Mansfield Dam after May 16, 2001.
(i) The authority may not provide water to a municipality under a contract authorized by this section unless the authority demonstrates, through its water management plan, to the commission that the authority will operate its water supply system in conjunction with the water resources management efforts contemplated by the contract to:
(1) increase the average lake levels of Lake Buchanan and Lake Travis by at least 6 feet and 18 feet, respectively, above the average lake levels of those lakes during times when those lakes would have been operating at less than 90 percent of conservation capacity without those efforts; and
(2) increase the average lake levels of Lake Buchanan and Lake Travis during a repeat of the drought of record at least 10 feet and 20 feet, respectively, above the average lake levels of those lakes during a repeat of the drought of record without those efforts.
(j) As a requirement of the authority’s water management plan, the authority shall submit annually to the commission data and a report demonstrating that the authority has operated its water supply system in accordance with the provisions of this section. The data shall include a tabulation that compares actual recorded lake levels with lake levels that would have occurred without the water resources management efforts contemplated by a contract authorized by this section. The commission shall review the data and report submitted by the authority and shall certify, in writing made available to the public, whether the authority has complied with the provisions of this section.
(k) The authority may sell no more than a total of 150,000 acre-feet of water in any year under contracts authorized by this section.
(l) This section does not authorize:
(1) the authority to pump water to the municipality directly from the Colorado River;
(2) the authority to sell its surface water rights to any person or entity for use outside the water service area; or
(3) a sale or lease of water other than as specifically authorized by this section.
(m) The authority may not sell groundwater to a municipality under this section.
(n) The authority may not contract to distribute or sell water under this section unless the board finds, after providing an opportunity for public input, that the contract:
(1) will protect and benefit the lower Colorado River watershed and the authority’s water service area, including municipal, industrial, agricultural, recreational, and environmental interests;
(2) is consistent with regional water plans filed with the Texas Water Development Board on or before January 5, 2001;
(3) will ensure that the beneficial inflows remaining after any water diversions will be adequate to maintain the ecological health and productivity of the Matagorda Bay system;
(4) will provide for instream flows no less protective than those included in the authority’s Water Management Plan for the Lower Colorado River Basin, as approved by the commission;
(5) will ensure that, before any water is delivered under the contract, the municipality has prepared a drought contingency plan and has developed and implemented a water conservation plan that will result in the highest practicable levels of water conservation and efficiency achievable within the jurisdiction of the municipality;
(6) provides for a broad public and scientific review process designed to ensure that all information that can be practicably developed is considered in establishing beneficial inflow and instream flow provisions; and
(7) will benefit stored water levels in the authority’s existing reservoirs.
(o) A municipality that buys water from the authority under a contract authorized by this section may not resell that water outside the boundaries of the regional water planning area in which the municipality is located, as those boundaries are designated by the Texas Water Development Board as of January 5, 2001.
(p) Nothing in this section shall exempt the authority or any municipality from the permitting requirements of state and federal law.