HomeMy WebLinkAbout2011-09-19 City Council Continued Minutes Approved OST Y Off'
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City Council Minutes—September 26, 2011
At 7:00 p.m. Mayor Dean Maxwell called the continued Anacortes City Council meeting of
September 19, 2011 to order. Present were Eric Johnson, Nick Petrish, Erica Pickett, Brad Adams,
Cynthia Richardson and Brian Geer. Bill Turner was absent.
Water Contract Extension
Mayor Maxwell announced that Public Works Director Fred Buckenmeyer would first provide some
information about the Anacortes water system, then Steve Winter from Tethys would speak, then Council
would take public comments. He asked the public to limit their comments to three minutes so everyone
could have a chance to speak.
Mr. Buckenmeyer introduced a request for an extension of the Tethys water contract which would amend
the Site Selection clause of the original contract signed on October 8, 2010. He advised that the Council
packets included a copy of the evening's PowerPoint presentation, a letter from the Mayor including the
Tethys request memo, the E.D. Hovee report and copies of all email and correspondence received in the
last week or so on the issue. Mr. Buckenmeyer emphasized that the agenda topic was strictly the
extension of the water service contract, not any other aspect of the proposed development which would
be addressed during future permitting steps.
Mr. Buckenmeyer began with some background about the water system. He explained that the water
intake is on the Skagit River at Riverbend Road in Mount Vernon. Two pipelines carry water from the
water treatment plant to Anacortes. lnterties also carry water to Oak Harbor and NAS Whidbey and other
wholesale customers.
Regarding water rights, Mr. Buckenmeyer reported that the 1996 Memorandum of Agreement Regarding
Utilization of Skagit River Basin Water Resources for Instream and Out of Stream Purposes was a
landmark decision to solidify water rights for the eight signatories and establish minimum instream flows
for the Skagit River and several of its tributaries. He said Anacortes has the largest and oldest water right
on the Skagit River second only to tribal rights, dating back to the 1930's. The 1996 MOA granted
Anacortes aggregate water rights to 54.9 million gallons per day (MGD) or 85 cubic feet per second (CFS)
of non-interruptible water flow and an additional nearly 21 MGD of interruptible flow.
Mr. Buckenmeyer explained that Anacortes is both a municipal and a regional water purveyor which is a
rare combination. He said the Anacortes water utility is the largest source of potable water in Skagit and
Island counties, serving approximately 56,000 customers and thousands of businesses. Major customers
include the Shell and Tesoro oil refineries, the City of Oak Harbor, NAS Whidbey, Skagit PUD, the Town
of La Conner, the Swinomish Tribal Community and a number of private water associations on Fidalgo
Island as well as agricultural users. Mr. Buckenmeyer said that in 2011 the city served 21 agricultural
irrigation accounts which collectively used 2-5 MGD during the peak of the season.
Regarding water planning, Mr. Buckenmeyer said the utility's current average annual demand is 21.4
MGD with a maximum of up to 30 MGD. The future demand based on the 20-year water system plan
predicts a 2019 average of 27 MGD with a maximum of 38 MGD and a 2029 average of 29 MGD with a
maximum of 41 MGD. Mr. Buckenmeyer said these figures are based on the 20-year projections of all
current customers. Mr. Johnson inquired if the projections include the contracted Tethys consumption. Mr.
Buckenmeyer said the plan allowed for one additional industry using 5 MGD but not specifically Tethys.
Mr. Buckenmeyer then addressed Skagit River flows. He said the 68-year average through 2008 was
16,580 CFS or 10.7 billion gallons per day. He compared that to the Anacortes water right to 85 CFS (54
MGD) which is only 5% of 1 billion gallons. He displayed pie charts showing the tiny fraction of the Skagit
River water comprising the City's water right.
Mr. Buckenmeyer explained that in 2000 all Skagit County water purveyors entered into a coordinated
water system plan to ensure efficient service area distribution. Mr. Buckenmeyer quoted the following
Anacortes City Council Minutes September 19, 2011 1
statements from the CWSP: "The designated service area means a specific utility has accepted the
responsibility for development of cost-effective and efficient service to accommodate the future growth
that these areas will experience...."and "The designated service area defines the area within which all
future customers will be provided retail water service by the designated utility." He pointed out the
Anacortes designated service area on a map. Mr. Buckenmeyer added that all other utilities such as gas,
electric and cable also have designated service areas. He said that the City already has long term water
contracts with a number of customers, most of whom re-sell that water.
Mr. Buckenmeyer then briefly recapped the water treatment plant upgrade project that began in 2011
after 5-7 years of planning. The $56M project is expected to complete in 2013 and will essentially entirely
replace the existing treatment plant that was built in 1970, no longer has adequate capacity, and sits in a
flood plain. He quoted Mayor Maxwell as stating, "This water plant is the single largest economic
development engine in two counties."
Mr. Buckenmeyer then addressed some frequently asked questions about the water contract. Does the
City of Anacortes have the expertise and experience to negotiate a contract of this magnitude? He
responded that for years the City has retained the law firm of Foster Pepper to serve as legal counsel for
water system issues. He introduced attorney Steve DiJulio from Foster Pepper. What will enforce the
contract provision limiting the container size to 10 gallons? Mr. Buckenmeyer responded that contract
provisions will be enforced by all elements of the development approval and ultimately by the Mayor, staff
and policies set by City Council. Will other customers have to pay for capital facilities upgrades
necessitated by the Tethys contract? Mr. Buckenmeyer said the contract requires the Tethys project to
fund any capital facility upgrades required to meet its needs over and above the current water treatment
plant improvement project.
Mr. Buckenmeyer concluded his presentation with the exact language of the proposed contract
amendment which would alter Section 3.1, Site Selection, to give Tethys until December 1, 2012 to
deliver to the City a legal description and map of the property for its development. He said no other
contract provisions would be altered.
Mr. Petrish asked if the contract requires Tethys to find property within the city limits or that can be
annexed. Mayor Maxwell said yes. Mr. Petrish requested that Tethys be required to provide an analysis of
the impact of its rail traffic given the planned growth in rail traffic for hauling coal and crude oil in the
region. Mr. Buckenmeyer said this will be debated at length during development and permit approval, if
and when Tethys finds a site. Mr. Petrish requested that Tethys pay family living wages.
Mayor Maxwell invited Steve Winter, CEO of Tethys, to address Council and audience. Mr. Winter said
they have been working on the project for four years as part of a personal mission to bring manufacturing
jobs to the region. He recapped his personal background and ties to the local area. He said in 2007 he
retired from lntermec Corporation to pursue his other passions including renewable energy, green
building, and the Tethys project to sustain manufacturing jobs. He said the economic multiplier factor of
manufacturing jobs is highest of any type of job. Tethys researched which industries could have a
competitive advantage in the northwest and also be restructured to make them more environmentally
sound and the food and beverage industry was one. A sustainable, high quality water source and rail
access were two very important factors for that industry. Mr. Winter reminded that rail is more efficient
than trucks at moving freight. He said the environmental impact of any business is of concern and their
goal is economic development in the most sustainable and positive way. He said unlike retrofitting
existing facilities, the proposed new plant can use state of the art technology to minimize waste and use
compostable and recyclable bottles. He said Tethys is not requesting concessions from the City and will
pay its fair share for the water system. He reassured the public that the requested contract extension
does not change any of the other contract provisions, only the time available to Tethys to find a suitable
site. He said once Tethys determines whether it can find land, it can continue the planning for the plant.
He said the contract extension simply allows Tethys to complete its feasibility study.
Mayor Maxwell then opened the floor for public comment.
Anacortes City Council Minutes September 19, 2011 2
Bill Dietrich, 11660 Marine Drive, said he had submitted detailed written testimony to Council. Mr. Dietrich
asked that the process slow down. He said Mr. Winter wants rights to a stupendous amount of water
without committing to the details of the project and its costs and benefits to the City. Mr. Dietrich said
denying the contract extension would give Anacortes a chance to look at the complete project before
committing. Mr. Dietrich disagreed with staff's contention that the contract obligates Tethys to pay for
water plant improvements. He suggested a more aggressive and comprehensive contract. Mr. Dietrich
said the requested 5 MGD is a small part of the Skagit River flow but is a stupendous amount of water.
He said a plant that processes 1 MGD takes up 1 million square feet. He urged Council not to extend the
contract and take a look at the whole project.
Mark Bunzel, 14004 Biz Point Lane, president of Anacortes Chamber of Commerce and founding
member of the Anacortes Futures Project, called himself a proponent of sound and responsible economic
development for Anacortes. Mr. Bunzel spoke in support of the contract extension and said one year is a
short amount of time to find land. He called the project ambitious and said Tethys is working towards a
sound business plan. He said he was confident the agreement would not impact the future water supply
and called it an economic development proposition with the potential to be low impact to the environment
and provide hundreds of jobs with a trickle down effect of millions of dollars. Mr. Bunzel said if the City
doesn't use its water in a positive means it will flow directly into the saltwater of Puget Sound. Mr. Bunzel
said 60 years ago the community allowed two refineries to locate here and now has over a thousand jobs
and an expanded tax base. He urged Council to vote yes for future economic development.
Don Wick, Executive Director of EDASC, said he worked extensively with Anacortes and Tethys on this
project and said Tethys operates at the very highest level of integrity. He said EDASC commissioned an
economic impact study of the project and copies were available in the chambers and on the EDASC
website. Mr. Wick said jobs drive the economy. He said the project fulfills many of EDASC's goals such
as increasing employment, targeting companies whose jobs match currently unemployed and
underemployed workers, keeping workers close to home, increasing per capita wage, adding to the tax
base, and adding jobs that can't be outsourced. He quoted Anacortes American editor Jack Darnton's
editorial in support of the project. He concluded that EDASC certainly supports the contract extension.
Peggy Flynn, 2317 18th Street, Chamber of Commerce board member and Anacortes Futures Project
steering committee member, said her concern and interest is economic development and jobs. She said
the long term effects of the lingering economic downturn will mean continued unemployment, shrinking
budgets and a city in decline. She noted that over 40% of Skagit County residents travel outside the
county to work and said Anacortes can't support being a bedroom community. She called the Tethys
proposal an enormous opportunity for 500 new family wage jobs. Ms. Flynn said plant construction alone
would generate significant tax revenue. She urged Council to extend the Tethys contract.
Ralph Bennett, 4121 Clyde Way, said the economic benefits report was pretty sensational but was only
as good as its assumptions and the people trusted to deliver it. He said the plant will produce 4 million
gallons of beverages but the entire U.S. market in 2010 was 80 million gallons so the plant can produce
17% of all bottled water in the United States or 5% of all its beverages. He said it is hard to imagine a
successful market entry at that scale. He said the Hovee report assumes only 1% of the plant's output will
be sold in Washington State so doesn't consider the state losing any of its existing 3400 bottling jobs. Mr.
Bennett claimed that the first to go would the 100 or so jobs at the Advance H2O plant in Burlington. He
said the contract can't hold Tethys to not competing in Washington. He called for a due diligence review
and urged Council to dig deeper before extending the contract.
Val Ross Johnson, 5102 Macbeth, pointed out discrepancies in the number of employees the project
claims it will employ. He said Tethys projects 500 employees earning an average of$48K per year but
said nationally bottling plants are highly automated, require few workers and don't pay high salaries. He
quoted employment levels at plants of various sizes around the country and said the average salary is
less than $30K per year. Mr. Johnson said the Tethys contract requires Anacortes to provide 500 MGD
but the bottling plant is not required to provide a single job to anyone in Anacortes. He said no one would
sign a contract to give up a valuable commodity for nothing in return. Mr. Johnson concluded that the
contract should not be approved because it does not provide a written required return for someone in
Anacortes.
Anacortes City Council Minutes September 19, 2011 3
Karen Johnson, 5102 Macbeth Drive, voiced concerns with the contract. She said Tethys has shown a
pattern of missing two important business deadlines which does not bode well for its future performance
or reliability. She said its corporate status dissolved on March 1, 2011 and it failed to meet the scheduled
performance date for finding a site. She expressed concern about legal liability if international trade
agreements or climate change hamper projected sales. She said she is unaware of any plastic bottles
that are proven to be biodegradable. She listed a number of jurisdictions around the country that have
banned or plan to ban plastic bottles and/or bottled water. She said producing bottled water takes 2000
times the energy required to use tap water.
Pam Estvold, 3302 Oakes Ave, director with the Anacortes School District speaking on behalf of School
Superintendent Chris Borgen, encouraged Council to grant an extension of the contract. She said SEPA
permitting would allow for further analysis and public comment. Ms. Estvold said that if the facility is
deemed appropriate for the community, environmentally friendly and safe, it could have a positive
economic impact including jobs and tax revenues. It would broaden the school tax base which would
decrease existing taxpayer tax rates. It could also increase school enrollment if new workers move to the
area. She concluded that ASD 103 is excited to continue working with the city and community to help the
community move forward in a positive manner.
Corrine Salcedo, 4303 Kingsway, said that as of September 30, 2011 Tethys will have violated the
contract by not finding a site. She asked Council to deny the request, cancel the contract and cancel the
project. She urged bringing green jobs to Skagit that don't involve petroleum, plastic or useless products
and said bottled water is needed for emergencies only.
Marty Laumbattus lent his support to extending the contract and said it would be good for the city, the
county and the state. Mr. Laumbattus said all the issues with the project can be mitigated.
Ross Barnes, 1004 7t" Street, #202, commended the mayor, council, city staff, Don Wick and others
working to achieve maximum local economic benefit in return for the valuable local resource of fresh
clean water. He called the Tethys contract a start. Dr. Barnes said Tethys wants to be rewarded with a
significant extension but it should give something more in return. He said Tethys has been working on
economic and plant design models and that progress should be flexibly memorialized in any contract
extension. He said Tethys projects 500 new jobs and this should be flexibly memorialized as a
requirement to provide 90% of Tethys' employment projection pro-rated with water use. Dr. Barnes also
requested that Tethys clarify if its rail car numbers refer to loaded cars and would double counting full and
empty cars because the impacts and associated mitigation for projected future increases in rail traffic are
currently under review as part of the County's SEPA review for Tesoro's rail extension application.
Sandra Spargo, 1408 11t" Street, provided a handout asking should Anacortes hold a feasibility study of
Tethys rail traffic on the Skagit valley before extending this contract. She said 400 rail cars per day may
affect access to Skagit airport and other businesses north of SR20. She said the round trip car count
would be 700-800 cars per day from Anacortes into Burlington. Ms. Spargo calculated this could result in
70-80 minutes per day of grade crossings which would impact commuter traffic. Ms. Spargo also said the
allegation that Anacortes is required to sell water to Tethys is not true. She said municipal water suppliers
have a duty to provide service to all new connections within their retail service area but Tethys isn't a
retail operation, it is a wholesaler. She encouraged Council to consider the facts and invite green
businesses to the community.
Anna Torgersen, 4910 Paisley Place, urged Council not to extend the contract. She said among many
reasons the most important is that as an island, Anacortes has no local water reserves. She said the
water supply seems adequate now but that Anacortes should not contract to sell water that it may not
have, for many reasons, in the future. She contrasted Anacortes to Cove, Oregon which sells bottled
water from artesian wells which she said is an almost unlimited supply. Ms. Torgersen said there are
many other good reasons to oppose selling products containing our water. She agreed that Anacortes
needs new businesses, but not this one.
Anacortes City Council Minutes September 19, 2011 4
Duncan Frazier, 400 East Park Drive, said getting Anacortes into the water business was a forward
thinking idea back in the 30's. He thanked those involved with securing water rights for Anacortes to
55 MGD in the 1996 MOA. Mr. Frazier said he could see no downside to extending the contract for 14
months. He urged Council to let Tethys get on with its feasibility study and please extend the contract.
Duane Clark, 13925 Seaview Way, thanked Mr. Buckenmeyer and Mr. Winter for their presentations and
also thanked the author of the Hovee report for addressing the economic possibilities for the community.
Mr. Clark said there is no reason to stop the process Tethys is currently in. He encouraged Council to
allow them to continue their feasibility study.
Mike Keller, 2306 12th Street, urged Council to continue water supply negotiations with Tethys. He said
it's summed up in the word jobs. Mr. Keller said the internet shows that Skagit County's unemployment
rate is about 10%, or 6,000 people. He said the prospect of adding 500 new permanent jobs is a blessing
not to be ignored or postponed for further study. He asked Council to keep the Tethys project on the front
burner.
Tom Glade, 210 Mansfield Court, representing Evergreen Islands, said El has been told that
environmental concerns will be addressed when the applicant submits a development proposal but that
will be too late. He said Evergreen Islands' likely concerns include increased toxic carbon particulates
from trains, increased air pollution from idling vehicles waiting at train crossings, increased coal burning to
generate electricity to run the plant, loss of the March Point heronry, available water during the summer
due to climate change, and the amount of debt the City has incurred to protect its water rights. Mr. Glade
also pointed out that the Skagit County Coordinated Water System Plan says that by 2050 the City will
have a water deficit of 15 MGD. Mr. Glade asked that Council do its own capability study to see if the
County can handle the infrastructure requirements for a facility of the size proposed.
Mr. Winter returned to the podium and thanked citizens for their statements. Addressing the legitimacy of
the business plan, Mr. Winter said it is a bold plan, a game changing plan. He agreed that Tethys is
proposing to supply a substantial portion of the western United States' requirements. He said to transform
the carbon footprint of the industry they need to take advantage of transportation efficiencies and
consolidate jobs in one location. He reiterated that this is not a water bottling plant, it is a food and
beverage plant for which the quality of worker and wage scale are both higher than for a simple bottling
plant. He said the projected wage rates were from US government sources looking at average wage rates
from the bottling industry. He confirmed that he does have a full time job but has many business interests
which his company allows him time to pursue. He said the Tethys proposal will create significantly more
rail traffic in the area but will take hundreds of trucks off the road. He added that rail arrivals and
departures can be scheduled so they aren't at peak times. He concluded that Tethys looks forward to
working with the community to address concerns and bring jobs to the area.
Mr. Adams asked why Tethys requested the extension. Mr. Winter replied that finding land for a plant of
this scale with rail access is a substantial challenge and it has taken time to resolve issues with potential
landowners. Mr. Adams requested a report on progress to date. Mr. Winter replied that Tethys had
identified a couple of different locations they are interested in, some have not worked out, and Tethys is
now reassessing how it can address landowner concerns and reopen negotiations. He said the options
are fairly limited.
Mr. Geer asked what would change in the next 14 months. Mr. Winter said Tethys needs time to address
concerns of landowners and to look at alternatives as well as to work with government and community
officials to see how they can achieve their goals and earn the support of the community.
Mr. Johnson observed that Anacortes will probably have to increase the water treatment plant capacity to
meet the future needs of Tethys and the community at peak demand. Mr. Winter said the contract
requires Tethys to fully fund those capital improvements if necessary. Mr. Johnson asked if the City is in
fact required to sell water to Tethys. Mr. DiJulio replied that contract Section 2.2 says, "The City may, but
is not obligated to, supply water to the Customer." He said there is a disputed issue of law as to the
obligations of a municipality to serve customers within a designated service area. Mr. DiJulio said his firm
has advised Anacortes that its legal obligation is to serve only within its corporate limits but acknowledged
Anacortes City Council Minutes September 19, 2011 5
that there is contrary opinion on that position. He added that the contract requires Tethys to locate within
the City limits or on land that can be annexed and after annexation Anacortes would be obligated to
provide service there.
Mrs. Richardson asked Mr. Winter what impact denying the extension would have on the feasibility study
and moving forward with planning. Mr. Winter said without the contract extension Tethys would assume
the project is not feasible and cancel the project.
Mr. Johnson asked to know the milestones in the development approval process that would provide
opportunity for public comment. Mr. Buckenmeyer replied that the project would require a SEPA review, a
number of permits including a building permit depending on where the project were located, and possibly
an environmental impact statement, and each of these would provide an opportunity for public comment.
Mrs. Pickett asked Mr. DiJulio if the City would be liable to Tethys if the river dried up. Mr. DiJulio said no
and quoted contract Section 4.5 and AMC Chapter 8.29 addressing this question. Mrs. Pickett clarified
that at extreme low flow the bottling plant would not receive priority over residential services. Mr. DiJulio
said AMC Chapter 8.29 governs the prioritization of water service during low flow events.
Mr. Geer asked Mr. DiJulio what would be the impact to existing customers if Council were to extend the
contract for 14 months but Tethys still didn't find a site. Mr. DiJulio said there would be no impact other
than that existing customers would continue to bear the full costs of the existing system. He confirmed
that the City would have no liability if Tethys did not find a site in the next 14 months.
Responding to public comments on the City's obligation to sell to retail customers, Mrs. Richardson
requested clarification that the City is obligated to supply customers in its retail service area regardless of
whether the customer is itself a wholesaler or retailer. Mr. DiJulio reiterated his counsel that the City is not
obligated to serve any customer outside its city limits but that the City is obligated to serve any customer
with a lawful use within the City limits. Mrs. Richardson asked if a customer is within that area is there any
basis for refusing water based on the customer's business plan or number of jobs provided. Mr. DiJulio
responded that in its legally determined service area the City must provide water notwithstanding the
business plan or model of the customer.
Mr. Adams clarified that during the development approvals the City would have opportunities to negotiate
terms to mitigate adverse impacts. Mr. Buckenmeyer said yes, that impacts are typically identified and
mitigation conditions proposed at the Planning Commission level. City Council could then remand,
approve or deny the project after its review of the Planning Commission recommendations.
Mr. Geer reminded that the action item before Council was strictly whether or not to amend the existing
contract to allow Tethys another 14 months to look for a site. He discussed current and historical
economic challenges and said Council has an obligation to make sure the local economy can survive and
bring in jobs. Mr. Geer moved, seconded by Mrs. Richardson, to extend the Tethys contract. Mrs. Pickett
thanked the public for their comments and recognized a spectrum of points of view. She said the question
of plastics pollution is a big nasty one and that existing bottling plants won't switch to new materials. She
supported the contract extension. Mr. Johnson added his support to the extension and said bottled water
is a necessity in some places. He noted the upcoming Skagit Climate Science Consortium meeting to
study climate effects on water supply and said his concern is what the supply will be for the next 50 years
from the river. Mr. Johnson said a lot of high tech visions are risky but there is also a lot to be gained from
them so he was looking forward to seeing the business model and to opportunities for the community to
discuss it. Mr. Petrish said after reading the contract he felt there were enough safeguards to protect the
City and the water supply and said he had always believed the water should be used wisely for economic
benefit. He said he was confident the City would be able to address environmental matters. Vote: Ayes—
Johnson, Petrish, Pickett, Adams, Richardson and Geer. Motion carried.
There being no further business, at approximately 8:48 p.m. the continued Anacortes City Council
meeting of September 19, 2011 adjourned.
Anacortes City Council Minutes September 19, 2011 6