GlobalFoundries debates water district over discount

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Champlain Water District general manager Jim Fay is pictured at the South Burlington facility last year.  (File photo by Michaela Halnon)

Champlain Water District general manager Jim Fay is pictured at the South Burlington facility last year. (File photo by Michaela Halnon)

The village of Essex Jct. has found itself in the middle of talks between GlobalFoundries and the Champlain Water District after the chip-making company asked for a discounted rate.

The water district, which serves 12 municipalities, is now considering a contingency plan in case larger users like GlobalFoundries ever abandon ship.

GlobalFoundries is CWD’s largest user, taking in 3.4 million of the district’s 9.4 million gallons daily. Since the company funds the highest percentage of the district’s fixed costs and bond interests, GlobalFoundries’ spokesman Jim Keller said they hoped to get a bigger discount to align charges with what it costs to send water to the fab.

The CWD board met the request last year with reluctance, partly due to the district’s status as a non-profit utility, chairwoman Karen Richard said.

“There isn’t profit in the water,” she said. “The rates pay the bills.” GlobalFoundries is also using less water than in years prior, she added.

During a two-month period late last year, GlobalFoundries used 150,000 fewer gallons than the previous two years over the same timeframe. The board decided to monitor the company’s daily usage before deciding, she wrote in a letter.

A month later, GlobalFoundries urged the board to reconsider.

“In benchmarking against other GlobalFoundries locations, the Vermont facility is ranked last in cost of operation,” Daniel Tukey, a lobbyist for the company, wrote in response.

Tukey argued usage dips in the winter because cooling towers require less water. And despite last year’s trend, GlobalFoundries’ winter volumes are trending upward over the past eight years, he said.

“It is imperative that the Vermont site lowers its operating costs to better position the company for success and longevity,” Tukey wrote.

A graph on CWD’s website details GlobalFoundries’ water purchases dating back to 1995.

Then, the district funneled IBM 3.81 million gallons per day. That number peaked at 4.78 million per day in fiscal year 2001 before it trickled down over the next nine years to 3 million, the lowest total two decades.

Since then, GlobalFoundries’ daily usage has risen by 400,000 gallons, Turkey points out. In its proposal, GlobalFoundries requested any usage beyond 2 million gallons be discounted, with markdowns increasing by usage.

After the second request, the CWD board instructed staff to consider granting a broad discount for large users while staying budget neutral.

Keller said GlobalFoundries believes this would be a good first step.

“That would result in a more causal relationship between what we use and what we pay,” he said.

CWD general manager Jim Fay is still working through the specifics, he said, noting village trustees would broker any agreement, since Essex Jct. serves as an intermediary between CWD and GlobalFoundries, purchasing water to sell to the latter.

CWD would also need a safeguard to recover some money in case the “relationship didn’t last long term,” Fay added.

The village currently sells water to GlobalFoundries at a wholesale rate of $2.04 per 1,000 gallons. When GlobalFoundries took over IBM, the trustees approved keeping the same agreement in place, village president George Tyler said.

“We can’t go any lower,” he said.

Keller said the company wants minimal impact on the district’s municipalities. But the initial proposal would mean a $128,000 loss for CWD if GlobalFoundries continued its current usage, according to Essex town engineer Dennis Lutz. That deficit shrinks if usage ticks upward.

If GlobalFoundries’ continues to use less water, falling to 3.1 million gallons per day, CWD would be $244,000 in the hole, Lutz wrote in an email the CWD board.

GlobalFoundries has reduced its proposal since then, but its request is still flow-based, Fay said. So a vital question remains: What direction is GlobalFoundries’ water use trending?

“I would put my money on the down as we have seen recently,” Lutz wrote. “I see their proposal hurting us not only in a direct reduction but in an overall loss of revenue. Our losses increase as their flow goes down.”

Lutz’s calculations are “somewhat simplistic” because they don’t include costs to treat the water, he said.

While final numbers may differ due to chemicals and power needed, those savings aren’t proportional to what it costs to keep the facility up and running, Fay said. The CWD budget shows salaries, insurance, retirement and maintenance make up about 66 percent of expenses.

Lutz said if his calculations are “even remotely accurate,” he would have a hard time considering the request further.

Aaron Martin, Essex’s representative on the CWD board, said negotiations stoke a familiar fear that’s shadowed the facility since before GlobalFoundries took over: What happens if the company, and its thousands of jobs, left the area?

“That’s always looming. It has been for how many years? Everyone talks about it,” Martin said.

The district’s charter says any deficit over 20 percent of the operating budget must be recouped through CWD’s customers. One-third of that recovery formula is based on population, with the remainder based on usage.

As the highest consumer in the district, that leaves Essex Jct. in a tough spot. Beyond substantially lower tax support from a GlobalFoundries’ exodus, the village could also be on the hook for the lion’s share of any major debt.

CWD manager Fay pointed out this is purely hypothetical.

The district has never pursued this part of the charter, instead managing its budget like any other municipality — delaying projects or purchases to avoid deficit, he said. Plus, the likelihood of GlobalFoundries leaving at a moment’s notice is small due to its multi-year contracts with customers, he said.

Still, it’s a contingency plan for the worst-case scenario, Fay said. Instead of bulk payments, a 10- to 20-year bond could lessen the strain on municipalities resulting from any larger user falling out, not just GlobalFoundries.

The board planned to discuss a draft of the policy at its next meeting March 14.

Richard, CWD’s chairwoman, said the board understands GlobalFoundries’ efforts to stay viable.

“That’s why we’ve given so much time to this situation,” she said. “But you do wonder how much notice you would get if they should leave.”