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Waukesha - The City of Waukesha will buy Lake Michigan water from Oak Creek under a letter of intent approved Tuesday by each city's common council and pending approval of the diversion by the eight Great Lakes states.

In separate meetings Tuesday, the councils embraced a 40-year water deal that comes with a construction price tag of $183 million for Waukesha to build pipelines and pumping stations to bring water inland and return water, in the form of treated wastewater, to the lake.

The projected costs are $78 million less than estimates made before negotiations because of reduced miles of pipeline and other savings in the final plan, officials said.

Oak Creek's council approved the plan on a 5-0 vote. Ald. Michael Toman was on vacation.

Later in the evening, Waukesha's council adopted the letter of intent on a 12-0 vote. Common Council President Joe Pieper, Ald. Vance Skinner and Ald. Adam Jankowski were absent.

The duration of the deal can be extended for four additional 10-year terms up to a total of 80 years.

"This is a great example of the benefits of regional cooperation," Waukesha Ald. Paul Ybarra said in a news release. "Waukesha will have a sustainable supply of healthy water, and Oak Creek will benefit from increased revenues for both the water utility and the city."

Wholesale water rates offered to Waukesha are estimated at $1.90 per 1,000 gallons of water, officials said. Oak Creek agrees to supply between an average of 7 million gallons per day beginning later in this decade and an average of 10.9 million gallons per day by midcentury under terms of the letter of intent.

The revenue will benefit Oak Creek residents and businesses by decreasing their retail water rates as much as 25%, officials said.

To pay the costs of a lake water supply, average monthly residential water bills in Waukesha would climb to $58.26 by 2022, up $32.26 a month from this year, Waukesha Water Utility General Manager Dan Duchniak said. All other water options, including drilling more wells, would be more expensive and less sustainable than a lake supply, he said.

Waukesha's negotiating team has not met with one other possible supplier, Racine, since early September.

During a Sept. 18 closed-door meeting, the Waukesha Common Council reviewed draft proposals from Oak Creek and Racine. After that meeting, Waukesha's negotiators focused on completing a deal with Oak Creek.

Costs of building greater distances of pipeline put Racine at a disadvantage, according to Ybarra.

No Milwaukee talks

There were no talks with a third possible supplier, Milwaukee.

As recently as August, 2011, Waukesha officials projected spending $164 million for a Milwaukee connection, and its diversion request identified Milwaukee as the preferred supplier.

Preliminary discussions with Milwaukee Water Works engineers indicated Waukesha would need to build an additional $6 million worth of water main, pump stations and other facilities for a Milwaukee connection, Duchniak said.

Adding an estimated $5 million for a one-time economic compensation payment requested by Milwaukee boosted the total to $175 million, or just $8 million less than the revised cost of connecting to Oak Creek, he said.

Earlier this year, Milwaukee Mayor Tom Barrett and the Milwaukee Common Council refused to negotiate a water agreement that would include distributing water beyond Waukesha's existing service area.

The existing service area includes the city and 112 or so residences and businesses in the Town of Waukesha that have been connected in recent years after encountering problems with their private wells.

Barrett and the council have not changed course despite the August declaration of state Natural Resources Secretary Cathy Stepp that any municipality selling lake water to Waukesha must agree to supply its entire future water service area.

The Southeastern Wisconsin Regional Planning Commission designated a future water supply service area for Waukesha that encompasses portions of the City of Pewaukee and Towns of Delafield, Genesee and Waukesha.

The Milwaukee Water Works has reported the city would receive more than $3 million in annual revenue from selling water to Waukesha.

Waukesha is asking Wisconsin and the other seven Great Lakes states for approval to divert up to an average of 10.9 million gallons of lake water a day by 2050 across the subcontinental divide separating the Lake Michigan and Mississippi River watersheds. In 2010, the city's average daily demand from its wells was nearly 6.7 million gallons of water a day.

Any Lake Michigan water sold to Waukesha must be returned to the lake as treated wastewater under terms of a Great Lakes protection compact.

Waukesha has requested a lake water supply so that it can stop using wells drawing radium-tainted water from a deep sandstone aquifer. The city is under a state court order to reduce concentrations of radium and provide safe drinking water to customers by June 2018.

The Wisconsin Department of Natural Resources is reviewing the city's request and must certify the application meets terms of the regional compact before it is forwarded to the other states.

One of the documents needed for Wisconsin to complete its review is an agreement with a municipal water supplier. The agreement must spell out the geographic area to be served, the cost of the water and the facilities Waukesha would need to build and pay for - such as water and wastewater pipelines and pumping stations - to move the water inland and to return wastewater to the lake or a tributary.

One possible connection to the Oak Creek water supply system could be established by building a pipeline to S. 27th St. and W. Puetz Road, Duchniak said.

City of Franklin officials have said another possible option for Waukesha would be to help Franklin pay for extending a large water main further west along W. Puetz Road. This connection would cut costs for Waukesha by reducing the length of the pipeline needed to obtain Oak Creek water.

Franklin buys water from Oak Creek.