FERNDALE - The Public Utility District of Whatcom County has agreed to pay the city of Ferndale $200,000 after it stopped buying the district's water.

The figure came out of several months of negotiations between the utility and the city over how to close the books on Ferndale's investments in the district's water system. Ferndale had paid the district for improvements that no longer benefit the city, and $200,000 was the agreed-upon compensation.

The possibility of a payment was part of the contract between the city and the water provider, which the city terminated at the end of 2011. Since then, Ferndale has been providing its own well water to residents and businesses.

Ferndale had been getting water from the Nooksack River through the district since the early 1970s, but escalating costs prompted the City Council to make the switch to well water.

District Commissioner Mike Murphy attended the City Council meeting Monday, Dec. 3, when the city approved the deal. Murphy was asked why the district's cost of providing water had gone up so rapidly, by 49 percent, from 2007 to 2011.

"Our facilities were not kept up as they should have been," Murphy said. "If you don't keep up with those, then the cost is greater later on. ... That also increased our costs on everybody, our customers, too."

Ferndale's water also had unique costs associated with it. The city was the district's only customer supplying residential water. The utility's major customers are industries on Cherry Point.

"There were things that we were doing for the city that we didn't for nobody else," Murphy said. "We didn't have to bring the quality of the water to the point where you needed it, as (our) industrial (customers) did not need that."

District commissioners approved the deal at their Nov. 27 meeting. It calls for the district to pay the full amount by Jan. 31, 2013.

Ferndale's well water has been the object of intense criticism from businesses, schools and residents, who say the water has such a high mineral content that it damages boilers and appliances. The payout from the district could go toward a water-softening system that would at least partially correct the problem, city officials have said.

"We intend to apply these funds for the continued improvement of our water delivery system," Mayor Gary Jensen said in a statement.

Reach RALPH SCHWARTZ at ralph.schwartz@bellinghamherald.com or call 360-715-2289. Read the Politics Blog at blogs.bellinghamherald.com/politics.