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Debate stems over ignored 10-year contract terms.

In the wake of contract disagreements dating back to last spring, the Portland Water Bureau has agreed to a mediation session with two of its wholesale customers, the city of Tualatin and the Tualatin Valley Water District.

According to Tualatin Valley Water District Chief Executive Officer Mark Knudson, the disagreement arose last April in response to Tualatin’s request for an additional supply of interruptible water for peak use months, the following June, July, August and September.

Knudson said the Portland Water Bureau would grant the additional supply only under a new payment structure and additional terms that imposed limitations on usage.

He says such terms were outside of the contract between the agencies.

“It looks to us that they’re imposing additional terms and agreements,” Knudson said.

Ultimately, Tualatin chose not to purchase interruptible water, he added.

Portland Water Bureau spokesman Edward Campbell declined to detail Portland’s counter-offer, but called the disagreement a pricing dispute.

“There are some very technical issues that drive the way the pricing works,” Campbell said. “We want to make sure our ratepayers aren’t in a position where they’re having to subsidize our wholesale customers. Our wholesale customers are trying to make sure they’re representing the interest of their customers.”

Knudson acknowledged that the current arrangement might allow Tualatin and the areas served by the Tualatin Valley Water District to keep rates comparatively low. Tualatin and Tigard residential consumers have long paid a lower water rate than their Portland counterparts. The city of Tigard and the Tualatin Valley Water District charge residential consumers $2.65 a unit, which is one hundred cubic feet of water. By comparison, the Portland Water Bureau charges its Portland consumers $3.32 a unit.

Regardless of rates, Knudson argued, the contract is binding.

“We recognize that that may adversely affect Portland financially,” he added, “but we would observe that Portland has allowed us to do that in previous years. Tthey haven’t raised this exception. It doesn’t say in the contract that they have the ability to use this limitation.”

The Tualatin Valley Water District encompasses areas of Beaverton, Hillsboro, Tigard and unincorporated regions of Washington County, serving more than 200,000 customers. It receives the lion’s share of its water, about 60 percent, from the Portland Water Bureau, and the rest from the Joint Water Commission, which draws from the Scoggins Reservoir at Hagg Lake and the Barney Reservoir at Tualatin River.

Throughout the year, Tualatin purchases water from Portland on what Knudson calls a “take or pay” basis, securing a minimum of 13.16 million gallons daily.

“We absorb the risk in terms of whether we’re going to use it or not,” Knudsen explained, calling the arrangement a “guaranteed revenue stream for Portland.”

According to the regional water sale agreement, interruptible water is an additional supply, beyond the guaranteed purchase quantities. The wholesale buyer must identify the quantities of water to be purchased each month for the June-through-September period.

Knudson claimed that this year, Portland limited how much interruptible water wholesale customers could use in a given day, as opposed to approving a monthly total, as the bureau has in the past.

“We don’t think that’s in the contract, we think the contract gives us the flexibility in how we take the water,” he said.

Now at an impasse, Portland Water Bureau and its wholesale customers have the option of pursuing mediation, which Knudson and Tualatin City Manager Sherilyn Lombos point out is in the contract.

“Tualatin’s interest is in resolving this issue in a way that is consistent with our contract with the city of Portland,” Lombos said. “We expect to resolve this issue in a timely way to the benefit of the customers we serve.” The complicated nature of Tualatin’s contract with the Portland Water Bureau was highlighted during last year’s fluoride debate. Portland voters ultimately rejected a measure that would have added fluoride to the drinking water supply, but the cities of Tualatin and Tigard, as wholesale buyers, found they had no say in the matter.

Lombos explained the long-running contract is self-renewing and requires five years advanced notice prior to cancellation.

Notably absent from mediation is the city of Tigard. Although Tigard purchases much of its water from the Portland Water Bureau and took similar issue with what it viewed as the bureau’s unacceptable new terms on interruptible water last spring, Tigard plans to switch from Portland water to a new supply in 2016 through its recent partnership with Lake Oswego.

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