A potential $25+ million payment - - similar in definition to New Berlin's $1.5 million, one-time regional services or cooperation fee, for the entire 20-year term of its water purchase agreement with Milwaukee, its preferred seller - - would be in addition to state-approved water rates per gallon.
And on top of $15+ million projected to advance the application, Waukesha says.
The figure appears on page 8 of this section of Waukesha's new information provided last week to the state DNR and is response to a question posed by the state agency:
The application contains no estimate of “sunk costs” or “one time” payments to Milwaukee, Oak Creek or Racine. The City of Waukesha has stated that the sunk costs are included as “contingency” costs in the May 2010 Waukesha Diversion Application. Please present the “sunk” or “one time” costs as a separate, specific cost item in the application.
It is impossible to know if a “one-time” payment will be required from water suppliers before negotiations are concluded. If a one-time payment were to be required, it is impossible to know a dollar amount before negotiations are concluded. Industry cost estimating standards for dealing with unknown conditions such as this are to use a contingency as a percentage of the construction cost. This also applies to other unknown situations, such as the changing cost of materials and local market conditions in the construction industry. The contingency is more than $25 million for the Milwaukee water supply alternative, plus an allowance of more than $15 million for permitting, legal, and administrative costs. This $40 million amount is sufficient to cover future unknown conditions that may or may not occur.Milwaukee made it clear via a unanimous Common Council signed by the Mayor (below) three years ago that a community like Waukesha buying Great Lakes water through the Milwaukee Water Works would have to meet a number of conditions with regard to housing, planning, and transportation and other regional and cooperative issues and services.
[Insert at the request of Waukesha Water Utility General Manager Dan Duchniak: Your claim that we have $25 million projected for a one-time payment is untrue. We have not ever stated a budget for any potential one-time payment. The contingency is for many items, one of which could be a one-time payment. Again, as you are aware, many unforeseen issues arise during the course of construction. These items may include: unknown soil conditions, unforeseen construction issues, adjustments for other utilities, etc. Having been through many large construction projects, it is very reasonable to encounter construction issues that were not anticipated. That is why it is standard industry practice to include contingency as a percentage of construction in cost estimates. The contingency is included in the estimates for all the water supply alternatives. In fact, the contingency is larger for the other alternatives because the construction costs are higher than they are for a Lake Michigan water supply. In the answer to the DNR question, we were merely pointing out that we could potentially pay a possible but unknown amount to a water supplier from this construction contingency. We did not project a $25 million one-time payment to a water supplier and to report it that way is irresponsible.}
The word "extortion" has been thrown around when it comes to these sorts of payments, but it is clear from the wording of the Milwaukee Common Council policy that genuine cooperation is expected from water sales' partners.
Here is the wording of the Milwaukee resolution (I will bold-face some items):
This resolution rescinds the policy set forth in those resolutions, and creates a new policy for negotiating and reviewing potential agreements for water service to other communities. This new policy differs from the current policy in 3 principal ways: