04-0842R


RESOLUTION AUTHORIZING A WATER SERVICE AGREEMENT WITH STORA ENSO NORTH AMERICA CORPORATION FOR ITS WEST DULUTH PAPER MILL.

BY COUNCILOR STOVER:

     RESOLVED, that the proper city officials are authorized to enter into a agreement, a copy of which is on file in the office of the city clerk as Public Document No. __________, with Stora Enso North America Corporation for provision of up to 5.75 million gallons of water per day to its West Duluth paper mill operation and establishing rates therefore.


STATEMENT OF PURPOSE:  The purpose of this resolution is to authorize a water supply agreement with Stora Enso for its West Duluth paper mill and to establish a mechanism for determining the rates which will be charged them.


Stora Enso is, far and away, the water utility’s biggest customer, normally consuming 27% of the city water consumed on an average day. Because of this volume, having Stora Enso as a system customer has historically benefitted the system, helping to keep overall rates lower for all consumers. However, because of their volume, if Stora Enso paid the same rates charged to low volume customers, their cost for water would be so high that it might be more economical for them to develop their own water supply. This would actually result in higher water costs for the utility’s other customers.


When the paper mill project was developed in the 1980's, Lake Superior Paper Industries, the predecessor of Stora Enso, negotiated special utility rates as part of the development. This contract follows that precedent but substitutes a rate formula to replace the current fixed rate percentage method of increasing water rates for the paper mill originally used.


In order to insure that Stora Enso continues to be a water utility customer, this agreement has been negotiated with them. It provides that the city will be their exclusive source of water for twenty years barring unanticipated circumstances and, in turn, provides a method of assessing charges which produce a cost savings to Stora Enso as compared to providing their own water supply while still benefitting the system and the rest of the users.