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SAVE LAKE TAPPS COALITION -- OPTIONS
IDENTIFICATION/RESEARCH COMMITTEE
MINUTES OF THE SEPTEMBER 22, 1999 MEETING
The meeting was called to order by Ken Castile.
Those in attendance were: Emily Kozie, Don Yeats, Don
Hanson, Terry Montoya, Ken Castile, Leon Stucki, Dick
Tyler, Ralph Mason, Doug Weston, John Farrell; Guests
included: Keith Brooks (FERC), Carter Kruse (FERC), Ed
Schild (PSE), Susan Hall (PSE), Mark Quehrn (PSE).
The minutes of the August 25 and September 9 meetings
were approved after a motion by John Farrell and second
by Terry Montoya.
Ken Castile introduced the speakers, Ed Schild and Mark
Quehrn from PSE.
Mark Quehrn began with background on the issues he
presented to the committee. He discussed utility options
and special district options to keep Lake Tapps viable.
He began with the following points to build a foundation
for the White River Project for the next 50 years:
***Assess Project Economics -- potential assets in
license approximately $31 million
***Identify Benefit & Beneficiaries including:
--fish enhancements to COE, Tribes & Public (regional)
--Wildlife enhancements to public (state & regional)
--Property values to homeowners
--Deferral of sewer to public (regional)
--Water supply to public (regional)
--Recreation to public (state & regional)
--Electricity to PSE customers
***Equitable Allocation of Costs of Benefits
***Agreement Among Parties
***Adaptive Economic Management
A key question is how to capture lake benefits for
homeowners including control of the reservoir and water
quality and keeping costs to homeowners to minimum.
Mark then addressed the various options he planned to
cover starting with utility options. These included
municipal utilities, public utility districts and others.
Municipal Utilities such as Tacoma Public Utilities and
Seattle City Light were discussed. This option requires
action by a city, either existing (Bonney Lake) or to be
formed. Voter approval would be needed. Control
Elements involved -- city has broad powers; utilities
(includes water, sewer and electricity); condemnation
power (must pay fair market value). Cost Elements
(acquisition) involved included fair market value plus
severance. Items which could be included in fair market
value include: plant & equipment, real property, water
rights, distribution system, severance damages,
litigation costs.
Question -- Would a municipal utility be possible without
distribution (generation only)? Mark was unable to give
a legal opinion. He did indicate PSE would be concerned
the city might choose to distribute at some time in the
future.
Question -- Can a city purchase a power plant without
becoming a utility? Mark believes so but PSE would still
view this as a potential future competitor. PSE has a
priority of protecting their distribution system.
Comment -- committee members noted that fair market value
is most likely too high for a city to be able to afford.
Cost Elements -- Operation & maintenance of the plant and
distribution system; Contingent liabilities including
business risks (costs of doing business), third party
liabilities, FERC decommissioning; Other costs including
Formation of city, city "O & M", adequate tax base
(bonding capacity) and Growth Management Act consistency
issues.
Observations: Municipal Utility -- 1) the existing
license with NMFS flows results in PSE cost to generate
of three times market. 2) the municipal "take over" cost
to generate is many more times market (greater sunk
cost). 3) the distribution system is expensive to
acquire and operate (additional sunk costs). 4)
competitive clashes. 5) how to secure and service debt to
finance take over? 6) tax exempt bonds not available. 7)
customers may choose another utility (deregulation).
Public Utility Districts (PUD) such as Snohomish PUD,
Grant PUD were discussed. PUD's are considered a
separate legal entity. They are formed by county
council, by citizen petition, with voter approval and
need not be county wide. Control Elements include broad
powers; water, sewer & electricity; and powers of
condemnation. Cost Elements would be similar to those
listed previously for municipal utility. The above
observations on municipal utility also apply to PUD.
Other Utility Options -- such as a private entity (not
PSE). Mark's comment was PSE would have to pay another
company to take over this project.
Dick Tyler mentioned the lack of local control if another
private company takes over. Ed Schild discussed the
possible sale process. PSE is reluctant to put the
project on the market. There might be a buyer willing to
pay the very high price who is only interested in
developing the land.
John Farrell stated control issues must be covered in the
FERC license through the collaborative process. Ed
Schild stated agreements on control issues can be reached
and stated in the license.
Other Utility Options -- Cooperative Association. This
would be a newly created entity. Costs and control
issues involved include 1) no taxing authority, 2) no
condemnation authority, 3) could it qualify for the FERC
license due to the amount of debt involved to acquire the
project?
Mark then went on to state homeowners may be able to gain
control of Lake Tapps without becoming a utility. This
brought up the issue of special districts.
Lake Management Districts -- are mandated by the State
legislature. Can control water quality and water levels.
Have taxing authority (special assessments) or can issue
bonds. These districts are formed by County Council
resolution; by petition of 15% of acreage within proposed
district and voter approval is required. Elements of
Control includes limited authority, acquisition of
property interest and lake management contract.
Dick Tyler mentioned this is a 15 year problem and the
project may very well become profitable in the future.
At that point would PSE share profits with the district?
Mark stated an agreement could be set up to avoid a
windfall to PSE.
Ken Castile asked whether acquisition of property
includes the lake bed? Mark stated that would be one
option or the district could enter into a lake management
contract with PSE to operate the lake. This is less
expensive. The contract could include lake level
management, maintain water quality, structured payments,
certain remedies and risk allocation. Ken further asked
if this arrangement could apply to a city management
proposal. Mark felt it probably could.
Leon Stucki asked what incentives would exist for PSE to
control costs. Mark stated a conformance agreement could
include these. PSE wants the 50 year license.
Ken asked if Bonney Lake annexed the lake and the plant
would enough taxes be available to pay for a lake
management district? Mark was not sure the tax base
would be enough to pay these costs.
Leon asked whether some of the land holdings could be
sold off to generate some revenue for PSE. Ed Schild
answered not according to the current license conditions.
Mark noted this could be achieved through the
collaborative process. Ed stated further PSE is
projecting a $3 1/2 to $5 million shortfall per year.
They need changes to the license to allow them to cover
this shortfall. A deal is required that makes sense for
all parties. John Farrell noted Dick Tyler calculates
only a $2.7 million/year shortfall.
Lake Management District -- Elements of Cost (LMD owns
assets) 1) property acquisition (plant, equipment, real
property interests and water right), 2) Lake Management O
& M, 3) formation and business risks. OR (LMD Contracts
with Third Party) -- Lake Management Contract: Maintain
reservoir level, maintain water quality, structured
payments, certain remedies, risk allocation.
Lake Management District -- Observations 1) needs only to
control reservoir, does not need to go into the utility
business; 2) a lake management contract allows homeowners
and project owner to allocate risks and benefits; 3)
purchasing no more or no less than you need is more
economical; 4) avoids concerns with utility service area;
5) ten year duration (current statute/legislative
committee). Mark recommended we pursue changing this
limited duration. Perhaps the legislature could assist.
Park & Recreation Service Area -- authorities include
financing, acquiring, constructing, improving,
maintaining, or operating parks and recreational
facilities. This entity has taxing authority as well as
ability to issue bonds and charge fees for use of
facilities. It can be formed by county council
resolution, petition of 10% of registered voters within
proposed service area and voter approval is required.
Elements of control -- limited authority, acquisition of
property interests, reservoir lease (subject to FERC
license and Lake Management District). It was noted this
entity would exist in addition to the above mentioned
Lake Management District because the LMD can't own the
lake bed. Elements of cost (P&RSA owns assets) --
include property acquisition, service area O & M, and
formation and business risks. Elements of cost (P&RSA
reservoir lease) -- reservoir lease covers maintain
reservoir level, maintain water quality, structured
payments, certain remedies and risk allocation.
Park & Recreation Service Area -- Observations: 1) PRSA
may have a different constituency than LMD, 2) Lake bed
by definition is not included in LMD benefit area so
lease to PRSA may allow further allocation of cost.
Mark reiterated using these two entities simultaneously
as a possible option.
Leon Stucki asked if PSE owns other lake beds in the
state. Yes, these include Baker Lake and Shannon Lake.
It was noted there is not a separate value to the lake
bed on the books. Leon asked how many of the above
mentioned LMD's and PRSA's exist currently. Could we
find out?
Special District: Other -- 1) LID's -- nothing really
fits our situation, 2) Recreation Districts -- limited
and not as flexible, 3) Public Facilities District --
nothing fits, either.
Mark strongly recommends we consider the two lake
district scenarios he has presented. PSE would be glad
to discuss with us how to set up such districts. Ken
Castile noted we should invite speaker(s) on this topic
to a future meeting. He will follow up. Ken further
reiterated our desire to continue with PSE as owner of
the project if at all possible. Ken also mentioned the
option of additional entities taking on parts of the FERC
license (for example Army Corps on the diversion dam).
Leon commented perhaps PSE would like to give the lake
bed to a public entity to avoid third party liability.
Mark didn't feel PSE could avoid being sued this way.
Question -- Could Puget Power Park be included in assets
a Lake Management District could acquire?
No answer was provided.
John Farrell commented he likes being able to charge
people who use the lake but are not property owners.
Mark wondered whether FERC would allow fees to be
charged. A FERC representative present indicated that
would be allowed.
Terry Montoya asked if there was a way a municipality
could generate power and then sell it to PSE without
distributing? Ed Schild stated they might be able to.
PSE's current position on selling the plant is there's no
reason to sell as long as the WRP is in the rate base.
The FERC license is the only reason we're in this
discussion.
Dick Tyler wondered whether a solution would be to apply
what PSE will make selling the coal plant to make up over
market costs in the rate base? Ed Schild stated this
must be ruled on by the WUTC. There was discussion of
what the WUTC might do with PSE's rate base if and when
PSE accepts the FERC license.
There was discussion of using the water right to help
with the shortfall. There is a Task Force committee
currently pursuing this issue. Mark noted this may not
be the silver bullet we think it is. We need to keep
other options open.
Finally, Leon questioned the economic issue of the lake
level. Could we get an answer to the eco
Minutes by Emily Kozie
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