CITY REACHES PACT TO BUY WATER UTILITY; AGREEMENT ALSO ACHIEVED ON GAS, ELECTRIC FRANCHISE

After more than three years of negotiations, the city of Cape Girardeau has reached an agreement with Union Electric Co. to acquire its water system and to renew gas and electric franchises for 20 years.

City Manager J. Ronald Fischer announced the agreements on Friday and said the City Council planned to submit the issues to voters for approval in November.

He stressed that the water system will be paid for through revenue bonds, which do not require a tax increase, and that the new franchise agreements with Union Electric have improved provisions the old agreements did not have. The city and Union Electric have been operating without an agreement since March of 1988.

"I am very pleased to be able to present these franchises to the citizens of Cape Girardeau for their approval at the November election," said Fischer. "It has taken several years of work in preparing these franchises and completing the negotiations successfully. I feel that as the end result, the franchises as well as the city's acquisition of the water system will be very positive for all involved."

The franchise agreements are not exclusive and among the provisions included are those relating to service reliability, economic development and future planning.

City Attorney Warren Wells said "We think that we have negotiated some provisions that are quite unique, certainly unusual as far as utility franchises are concerned.

"All in all, these new agreements are greatly expanded, much more detailed, with much more thought for potential problems and the need to address those before they occur. I think it really reflects the fact that the city's relationship with the utility company has matured. We are establishing ourselves in this process as equals, rather than just taking what they offer."

Fischer noted that Union Electric had advised the city in 1984 that since it operated no other water systems, it intended to eventually sell the system and would give the city the first opportunity to purchase it.

Since U.E. was going to sell to someone, Fischer said it made sense for the city to purchase the system.

"Even though the ownership of the water system has been technically with Missouri Utilities and then Union Electric, it really belongs to the citizens of Cape Girardeau. Whoever owns the water system will have the responsibility of maintaining, improving, and expanding it. We feel it is best that this be done through the control of the citizens," said Fischer.

The city already owns and ope~rates its sewer system and Fischer said ownership of the two go hand in hand. He added that most cities operate their own water systems.

Having control over water and sewers will help the city in moving into new areas of potential growth. "We can really control the growth of a community if we can put sewers and water in," said Fischer.

The negotiated purchase price of the water system is $8.5 million, which Fischer noted is $4 million below the depreciated book value. If the system were sold to another company, that company would likely charge higher rates to pay for costs of upgrading the system and must also earn a profit. If the citizens own the system, making a profit does not have to be figured into the costs of service.

He noted that at least one utility company had offered UE $12.5 million for the water system.

Fischer said he was aware of some concerns about the condition of the water system, especially in older parts of town, but noted UE had made some major improvements in recent years, including building a new storage tank.

Before agreeing on a price, city officials conferred with Vernon Stump of Mid-Missouri Engineering in Columbia, which operates several city water systems in Missouri and Kansas, to assess the condition of the system. He said the firm, or one like it, would likely be retained to help in the transition from Union Electric to the city's Public Works Department.

Fischer added that the city's purchase price on the water system is subject to a study of the system that will start soon by the Kansas City engineering firm of Black and Veatch. "They will study the condition of the system and report to us on its condition," noted the city manager.

"I think this issue is going to be one of the most important issues that will be before the people in this city for many years to come," declared Fischer.

A citizens utility committee that met in 1987 made some recommendations, which were used as guidelines in the negotiations. One of the group's recommendations was to purchase the water system if it were available.

Fischer, Wells and Assistant City Manager Alvin Stoverink handled negotiations for the city, while three officials of Union Electric handled negotiations for the company, including Virgil Chirnside, district manager of the Cape Girardeau operations.

Fischer said the City Council is aware of the new agreements and supports them. "The City Council has been a part of the drafting and accepting of this franchise," said Fischer.

The council will hold a public hearing at 7:30 p.m. Aug. 5. At some point after the public hearing, the council will formally put the issues on the ballot.

During the negotiation period for a new agreement, city officials gave some consideration to changing to a municipal utility and not renew its franchise with Union Electric.

The difference between the decision to purchase the water system but not gas and electric, Fischer explained, "is UE does not want to sell gas and electric." Unless UE was willing to sell, acquiring the gas and electric would require a tremendous amount of time and money and a major legal battle.

Wells explained the gas and electric franchises are similar, except for points that are unique to each service. He noted that when negotiations began in 1987, Union Electric proposed an agreement that is similar to the old one.

One of the unique features of the agreement, noted Wells, is Article 4, which recognizes the legal right of the city or any business in the city to purchase power or gas from another company, a "wheeling provision." He noted that this is a heavily regulated area of law that has been the subject of much litigation in other places.

"This requires the local utility company to transmit power over its line, even though it is not the generator of that power," said Wells. "It is a heavily regulated area and not easy to do, but the right is there in the law and there is a recognition of that right by the company."

The electric agreement gives the city a 10 percent discount for street lighting, which Wells and Fischer say should save the city $500,000 over 20 years.

Other provisions require UE to:

maintain reserve generating capacity to insure the needs of citizens are met;

provide to the city the first right of purchase should the company decide at some point to sell its gas or electric service;

prohibit the company to transfer the franchise agreement to another company without the city's approval;

and agree to maintain a staffed service office in the city.

In addition, the city reserves the right to engage in electric production if it became feasible.

Wells added that the agreements also require the city to pass ordinances that regulate day-to-day activities of UE to insure that public health and safety is protected. This provision could enable the city to put regulations on how lines and poles are maintained, for example.

The agreement also includes provisions to insure fast response time by the company in making repairs to the system and insures cooperation in talks to expand the system to meet the needs of new industries or parts of town that are added.

The agreements also give the city manager or his designee the right to review records of UE that could be used in determining whether the agreement is being complied with or if a proposed rate increase can be justified.

Fischer stressed that in negotiating franchise agreements, it is not possible to negotiate a better rate than some other city due to Public Service Commission regulations. "Basically, we get what everyone else gets when it comes to rates," he noted. "But in this agreement we tried to get into service and reliability; they are committing to a quality of service and reliability with these agreements."

Both Fischer and Wells said they were optimistic that voters, after being given all the facts, would approve the agreements.

"It's a major issue the community has to address and make a decision on," said Wells. "We think November is the soonest we can do it and think with the other issues on the ballot there will be a good turnout, which we want.

"We don't want to isolate these issues. We want community support, and if we don't have that, we need to know it. But I think we will."