Maple City Pipe Dream

By Mike Kroll

It has now become clear to even the densest observer that depending on traditional wells for municipal drinking water in west-central Illinois is fraught with peril. Wells in this area can be quite fickle and the water tapped high in minerals and radium. The high mineral content is a nuisance and contributes to the frequent bad taste experienced with local well water but the radium content has become a state and federally regulated health issue. The EPA demand that radium levels in municipal water systems be reduced by December 2003 has forced at least two local communities to look toward Galesburg for salvation.

The City of Galesburg learned that lesson over 40 years ago and they took action to replace the city’s dependence on well water with a 30-mile/36-inch diameter pipeline to the banks of the Mississippi at Oquawka. This was a major risk and quite a costly undertaking for Galesburg at the time but one that has paid many dividends in the years since. According to a water rate study delivered to the City on July 11, 2001 Galesburg currently produces 280,400,000 cubic feet of water annually and sells 84.7 percent to city residents. The balance of water produced is sold to customers outside the city limits including the communities of East Galesburg and Abingdon. "In recent years, demand for water has been flat with annual variations seen in rate but little growth in demand."

Knoxville, one of the area communities affected by the EPA radium regulations, has recently decided to buy water from Galesburg by constructing a short connecting pipeline to the city’s water distribution system near the intersection of US Highway 150 and County Highway 10. Knoxville will buy treated water (exactly as delivered to Galesburg customers) at the City’s established outside water rate formula. This formula specifies that relatively small water users outside the Galesburg city limits must pay a rate double the in-town rate. However, large outside customers are presently charged $0.77 per hundred cubic feet (ccf) of water consumed beyond the initial 53,200 ccf. This $0.77 rate is approximately half that paid by the typical residential customer in Galesburg and a mere $0.12 higher than the rate charged to the largest in-town water users.

Monmouth is the latest municipality seeking to purchase water from Galesburg. But Monmouth’s situation is somewhat different than that of Knoxville or Abingdon. The pipeline to Oquawka travels due west from Galesburg and passes directly north of Monmouth approximately midway. Monmouth would tap into this pipeline before after the water has been pumped and chlorinated at Oquawka but before final treatment at the Galesburg Water Plant near the intersection of West Main and Henderson Streets. Monmouth would be taking "raw" water that would need to be treated at that city’s own treatment plant prior to distribution and will become the city’s single largest customer.

When the pipeline was first constructed it was assumed that a number of entities adjacent to the pipeline might want to tap on and purchase this raw water. In fact, the opportunity to do so was used as an incentive with farmers during negotiation for the pipeline’s required right-of-way. These pipeline customers number about 50 (according to the water rate study) and account for a very small quantity (0.2 percent) of the water produced in Oquawka, about 400,000 cubic feet annually. From the beginning the Galesburg policy has been to charge such pipeline customers a rate ten percent higher that that paid by in-town customers.

At this rate Monmouth would need to pay $0.73 ccf for water consumed beyond the initial 53,200 ccf. At an estimated 2.6 million gallons per day consumption nearly 100 percent of Monmouth’s water usage would be paid at this rate according to Cox’s own projections. At this rate annual water purchase costs to Monmouth would be approximately $925,000. This rate would be four cents lower than that charged to the other municipal customers and less than half the rate paid by Galesburg residential users. City officials point out that this water has not been through final treatment and has only been pumped half the distance to Galesburg. Therefore the actual production cost of this water to the Galesburg water department is less than finished water.

If Galesburg were to offer water to Monmouth at this established rate it seems unlikely that there would be any question about fairness. In fact, this was the city’s initial offer that Monmouth rejected. At the June 17 Galesburg City Council meeting City Manager Gary Goddard and Public Works Director Larry Cox proposed a much lower "raw water rate" of $0.43 ccf for water consumed beyond the initial 53,200 ccf. This new lower rate is one-third lower (22 cents) than the lowest in-town water rate and would thus reduce Monmouth’s annual water purchase cost to $545,000 according Goddard’s estimate to the City Council. This $380,000 "savings" for Monmouth amounts to lost revenue for the Galesburg water department.

When this rate was initially presented to the City Council Goddard explained that it was derived from an analysis of the actual cost of producing and pumping water up to the point where Monmouth would tap into the system plus a "modest" markup. On Tuesday Cox explained to me that this cost was calculated by subtracting the cost of distribution and treatment in Galesburg from the already established in-town production cost of $0.91 ccf leaving the treatment plant. According to figures Cox provided the Zephyr the calculated cost of water leaving the pumping station at Oquawka is $0.23 ccf and when a proportion of the pipeline cost is added that figure rises to $0.33 ccf at the point where Monmouth would tap onto the pipeline.

The water rate study calculated "an estimate of the cost of delivery of water to customers based upon the projected expenses and pumping history" by dividing 2001/02 operating expenses of nearly $3.3 million by the estimated total amount of water pumped and arrived at $1.18 ccf. This figure is 75 cents more than the proposed $0.43 ccf rate and 45 cents higher than the currently established pipeline rate ($0.73). Alderman Wayne Allen expressed his concern about the proposed rate at the last council meeting pointing out that while Galesburg must be a good neighbor to Monmouth we shouldn’t sell them water at such a low rate that would be unfair to the residents and Mayor Bob Sheehan appeared to share Allen’s concern.

Interestingly, there has reportedly been considerable discussion amongst city staff in the water department and public works in which much concern has been raised about not selling this water to Monmouth for too low a price. According to copies of internal city memos obtained by the Zephyr the recommendation of water department staff was that Monmouth be charged no less than the largest in-town water customers, or $0.66 ccf. One memo from Cox to Goddard dated May 31 states:

"I spoke to Lyman [retired public works director Lyman Jensen] about the history of water rates for other outside communities. The rates for the other communities are double the inside rates except for the large volume user that was intended to be 20 percent higher (presently 18.2 percent). This rate was an arbitrary number. I mentioned Monmouth had spoken with us, Lyman said this was not the first time and he would not recommend anything less than the rates inside customers pay."

The memo goes on to note that Monmouth was initially offered the $0.73 ccf rate but noted "Farnsworth thinks it should be a max. of $0.43 ccf." Farnsworth is an engineering firm out of Bloomington that is functioning as a consultant for Monmouth. Curiously, Farnsworth is also the firm that completed the Galesburg water rate study mentioned earlier. This means that they had access to the most detailed inside information about the financial affairs of the Galesburg water system before they became agent negotiating on behalf of Monmouth. This is an apparent conflict of interest and significant advantage to Monmouth in any such negotiations.

The Cox memo also states: "It is difficult to justify to those communities and customers outside the city why they pay higher rates, in most cases there are no additional costs. I don’t think Monmouth would accept the [$0.66 ccf rate] because it makes their costs considerably higher than their alternate. But I also think less than that rate will be difficult for our existing customers to accept."

A preliminary draft of a "Water Supply Contract" dated June 21 and slated to go to the City Council for approval at their July 1 meeting specifies that Monmouth pay the $0.43 ccf rate. The proposed contract mandates that Monmouth "maintain a water storage system sufficient to store a quantity of water equal to on and one-half time the daily average consumption… [and] one existing source of water capable of producing 1.3 million gallons of water per day" for emergencies. Monmouth is also afforded the unlimited option of reselling Galesburg water to its outside customers.

The proposed 99-year contract commits Galesburg to construct a second Ranney collector at Oquawka and requires Monmouth to contribute $1,865,000 toward the cost of this construction and other necessary improvements to be made at Oquawka. "Galesburg shall not be required to deliver water to Monmouth … [if Monmouth fails] to make payment for water previously delivered … after a period of ninety days from the day of statement."

Galesburg officials have not even publicly discussed two other issues that would have huge impact on the viability of any contracted sale of water to Monmouth. Foremost is the very capability of cash-strapped Monmouth to come up with the necessary up-front capital in addition to the ongoing cost of water purchased. Everyone is operating on the assumption that the Illinois EPA will award Monmouth a low-interest loan and Monmouth will in turn pass the additional costs on to its customers in the form of higher rates. Given both the state’s precarious financial condition and the huge number of communities across Illinois is exactly the same situation it would appear questionable at best that sufficient state money will be available to provide such loans.

Even if Monmouth gets such a loan there is the political problem of trying to raise their water rates substantially to cover these new costs with the very real potential that the biggest water customer in Monmouth, Farmland Foods (currently in chapter eleven bankruptcy), might be closed in the near future. Not only would the closure, even temporarily, of Farmland reduce Monmouth’s water revenues drastically; it would also be a huge economic blow to Monmouth already anemic local economy. There is the very real issue of Monmouth’s ability to absorb the costs regardless of how attractive Galesburg makes their water rate.