PORT ANGELES — The city will pay Nippon Paper Industries USA $200,000 to settle a claim after paper mill officials disagreed with the way the city has charged it for electricity utility taxes since the billing method was changed in October 2011.
The city also will receive less revenue from the mill for at least awhile.
City Council members unanimously authorized City Manager Dan McKeen to sign the agreement with Nippon at their Tuesday meeting.
“This will have no impact on the electric utility,” McKeen said.
“This is not out of the electric utility. This will have no impact on electric rates.”
City Attorney Bill Bloor said the $200,000 payment will come out of the city’s unassigned general fund balance, which contains about $5.4 million.
Nippon mill manager Steve Johnson said company officials have accepted the agreement.
“We’re good,” he said.
“The city has been good with understanding and reacting to our concerns.”
The settlement will mean less utility tax revenue for at least the next few months, Bloor said.
For the time being, the city will use the billing method Nippon officials think is correct, contingent upon the results of Nippon’s appeal of state utility taxes, he said.
City Chief Financial Officer Byron Olson said this will result in the city collecting about $8,000 per month less, “plus or minus $1,000,” in utility tax revenue into its general fund per month.
If this method continues, the city estimates it would collect about $100,000 less in utility tax revenue per year into its general fund.
Olson said this could ultimately result in reductions to specific general fund expenditures.
“Those reductions have yet to be determined,” he said.
“Everything in the general fund is potentially up for review.”
In October 2011, the city had changed its industrial transmission rate — which is charged only to Nippon — to reflect a change in billing methods the Bonneville Power Administration had made, Bloor explained.
The city buys electricity from Bonneville.
Nippon filed a formal claim for $394,257 in October 2013 over the amount of tax on electricity the paper mill had paid the city since October 2011.
Johnson said Nippon plans to seek an appeal on the amount of utility taxes paid to the state since the billing method was changed.
“[The] first step was the city and Nippon [coming] to an agreement, which we did,” Johnson said.
If the state agrees with the city’s method, Bloor said, Nippon has agreed to repay the city utility tax it will not be paying while the state makes its decision.
Nippon and the city had been in discussions since the claim was filed and ultimately developed the settlement agreement to avoid litigation, Bloor said.
“There will be a mutual release of liabilities and no admission of liabilities,” Bloor said, adding that the city still feels its calculation method is correct.
Councilwoman Cherie Kidd said she had been privy to the discussions between city and Nippon officials and was satisfied with the agreement.
“I’m happy to see the settlement because they’ve made an honest effort to work with us from the very beginning,” Kidd said.
In the coming months, Bloor said, the city will work with consultant FCS Group to perform a cost-of-service study of the industrial transmission rate to help eliminate any future uncertainty in the rate calculation method.
After the study is completed, Bloor said, council members would have information to make changes to the industrial rate ordinance if they feel changes are needed.
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Reporter Jeremy Schwartz can be reached at 360-452-2345, ext. 5074, or at jschwartz@peninsuladailynews.com.
