The Lena Village Board awarded contracts last week to construct a $3.4 million plant to reduce radium in the water supply and now hopes to get its largest customer, Saputo Cheese, to help pay for it.
The village is under an order from the Department of Natural Resource to complete the radium treatment plant by July 2015. However, the village and the Wisconsin Public Service Commission want Saputo to contribute money upfront toward construction costs or agree to continue to pay for its current water usage for the 20-year life of the treatment plant loan.
The construction contracts call for the plant to be built by the end of this year, but the contractors cannot incur any costs until authorized by the village.
“These contracts hold the price for 45 days … which gives us time to try and reach an agreement with Saputo,” Village President Steve Marquardt said.
Village Clerk Charlene Meier and Marquardt said the Quarles and Brady law firm is negotiating with Saputo for the village.
“Our intent is to keep the project on time. We want to avoid work in early winter months,” Marquardt said. “The contracts allow us a little time to work with Saputo Cheese to get an agreement, and we’re hopeful that should take place in a few weeks.”
Talks with Saputo began in late November, he said.
Calls to Saputo’s Lena plant were referred to corporate spokespersons in Montreal, Canada. Calls to Montreal were not returned before deadline.
According to an April 14 memo from Jeff Stone PSC Water Division chief, Saputo informed the village on April 7 that it will not make a lump-sum contribution to the project prior to construction. It may “consider” making payments to the utility after the project is completed. Saputo would annually review the payments, which would be proportional to the volume of its water usage.
“Such conditions do not mitigate the long-term risk that the utility is undertaking to provide safe water on behalf of all its customers, including Saputo Cheese,” Stone wrote.
According to PSC documents, Saputo uses about 90 percent of the Lena water utility’s annual volume and comprises about 67 percent of its sales revenue. In 2013, Saputo used 101 million gallons of water, and the utility’s other 250 customers used about 12 million gallons.
Lena has one of the least expensive water rates in the state, and Saputo has had little financial incentive to install water-saving technology. However, the company has indicated it may install such technology in the future.
Although Saputo may be able to decrease the amount of water it uses or even drill its own well, it will continue to rely on the utility’s water tower to provide pressure to fight fires.
The DNR is requiring Lena to size its radium plant to meet the water needs of all its customers, including Saputo.
The construction project is eligible for state grants and a loan forgiveness provision that will cut the amount Lena has to finance from $3.4 million for the plant to about $2.55 million.
To finance the construction loan, Saputo’s water rates would have to increase by $195,000 per year or 232 percent. The average residential customer would pay $279 more per year or 117 percent more, according to calculations by the PSC and the village’s consultants.
The PSC has expressed concerned that Lena “is bearing a disproportionate share of the financial risk for the project” without a guarantee that Saputo would stay on the water system, according to the April 14 memo.
The village has been using only one well since the DNR found the output of Well No. 1 exceeded radium standards. Marquardt is concerned that relying exclusively on Well No. 2 could lessen its output in the future.
“Our target is to get Well No. 1 piped into the new plant by Dec. 31. That allows us to implement a rate increase by Jan. 1,” he said. “If the project is pushed out farther than that, our rates can’t go up for several more months, and that would jeopardize our first loan payment.”
The utility plans to apply to the PSC for a rate increase this summer once the costs and Saputo’s position on the radium project are known, Marquardt said.
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