Tuesday, May 24, 2022

Financial report: H2GO plant could contribute to rate increase for county’s remaining customers

If Brunswick County loses 11.8% of its total revenues when H2GO and Leland leave to finish building the aquifer reverse osmosis plant, the county states all other customers could see an additional $5.15 on their monthly water bills. (Port City Daily photo/Courtesy Brunswick County, Raftelis Financial Consultants)
If Brunswick County loses 11.8% of its total revenues when H2GO and Leland leave to finish building the aquifer reverse osmosis plant, the county states all other customers could see an additional $5.15 on their monthly water bills. (Port City Daily photo/Courtesy Brunswick County, Raftelis Financial Consultants)

BRUNSWICK COUNTY — If H2GO’s long-planned reverse osmosis plant is completed, the utility and Leland could leave as customers of Brunswick County’s water system — and that could cost thousands of county customers more in their monthly bills.

This revelation, according to a recent Raftelis Financial Consultants draft report, may not settle well with 41,557 of the Brunswick County’s direct residential water customers or its eight remaining municipal wholesale clients. These clients (Southport, Oak Island, Shallotte, etc.) serve thousands of water customers who would not benefit from the Brunswick Regional Water and Sewer H2GO plant.

Related: Leland ushers residents through sanitary district petition process, Belville unaware and mayor not happy

The long-planned, partially-constructed, and quarter-paid-for H2GO reverse osmosis plant would allow Leland and H2GO to provide filtered water to their customers, instead of just conveying finished water from the county. While the plant’s future is currently dependent on litigation between H2GO, Leland, and Belville, it seems Brunswick County officials are planning for the financial impact of the plant’s completion — and the loss of two major wholesale water customers.

The exact magnitude of the plant’s effect on the imminent countywide rate increase has not been itemized in a study to date. Still, Brunswick County provided figures that attribute the plant making as much of a $5.15 monthly difference to the average direct county customer bill in fiscal year 2022 if Leland-area utilities cease to purchase water from the county.

It’s worth noting that water rates are set to increase with or without H2GO and Leland’s continued participation in the county’s water system — but the extent of that increase will depend on their decisions.

Leland giving H2GO its utilities

H2GO’s fate is tied up in a multi-million dollar lawsuit. The suit is currently sitting in the state’s Court of Appeals but could be dropped if the utility, Leland, and Belville can arrive at a proposed settlement agreement. Planned since 2012, H2GO has spent approximately $10 toward the $35 million plant. With wells already installed, the reverse osmosis plant would source water from the Lower Peedee and the Black Creek aquifers.

At 4 million-gallon-a-day (MGD) capacity, H2GO’s plant and aquifer-based raw water source could not feasibly serve all of the county’s customers. During this summer’s drought, demand peaked at 94% of the county’s existing total system capacity of 30MGD. Brunswick County’s plans to expand its 24 MGD Northwest Water Treatment Plant to 45 MGD are planned to be completed in December 2022. Together, H2GO and Leland require approximately 2.4 MGD.

Serving approximately 26,000 people (or 10,000 water customers), H2GO is set to accept approximately 3,000 more water accounts as Leland works to hand it over all its utilities — valued at $66 million in combined cash and assets in the ground. This utility transfer is neither finalized nor guaranteed. However, officials have implied that things are headed that way, having set two meetings this week to sign off on the necessary paperwork; H2GO’s is tentatively Tuesday, Oct. 1 and Leland’s is Wednesday, Oct. 2, both at 6 p.m.

First billed as a concept in a proposed settlement agreement, it is not clear whether the Leland-H2GO utility transfer can be completed independently from the proposed legal settlement, which would also require the approval of Belville Commissioners and a judge.

Leland has anticipated the transfer by organizing an effort to rally residents in Brunswick Forest — who are served by the town’s water system currently —  to sign a petition that would secure voting rights in H2GO elections. However, Leland did not inform H2GO’s full board or Belville’s legal team before doing so. Leland’s manager said the matter didn’t involve Belville and he wasn’t concerned; Belville’s mayor was highly skeptical and said his attorneys were investigating.

Though Brunswick County publicly asked local utilities to consider regionalization to lower overall cost and rates in July, its wishes have apparently been largely ignored in recent tentative settlement discussions. The county has limited control over whether H2GO and Leland end up backing out as customer so county officials have to plan for all contingencies.

Loss of two wholesale customers

H2GO does not treat water. As Brunswick County’s largest water customer, H2GO purchases over $2 million in water each year to supply to its own customers with treated water. Leland, the county’s eighth-largest water customer, pays the county $467,000 annually to supply treated water to town customers.

Combined, Leland and H2GO’s consumption make up 17.4% of the total volumetric water Brunswick County Public Utilities treats annually and 11.8% of its total water revenues.

In May, Brunswick County received the results of a financial rate study recommendation from its consultant, Raftelis. These water rate changes included an approximately 14% increase for an average customer bill and an overall increase of 31% (rates vary depending on the assigned tier of water use, with higher rates charged to the largest consumers to encourage water conservation).

In the May study, an average water customer buying water from the county in the lowest residential tier using 4,500 gallons a month with a three-quarter-inch meter would see their bill increase from $25.73 (2019 rate) to $28.95 in 2022, a 12.5% increase. Raftelis’ recommendations at that time did not account for the loss of H2GO and Leland as water customers and were based on a federal loan financing method that Commissioners approved abandoning earlier this month.

From a draft financial feasibility study. (Port City Daily image / Brunswick County)

Draft financial feasibility reports produced in August and September account for the loss of the county’s northern customers, should they opt to build their own plant, as well as new financing methods using $260 million in combined revenue bonds (county wastewater treatment rates will not increase as a result of expanding the Northeast Wastewater Treatment Plant — rate increases are only necessary to balance the county’s water revenues and expenses).

Rafetlis’ recent reports attribute water rate increases to multiple factors, including losing H2GO and Leland’s revenues. This attribution is not itemized.

Additional factors to the rate increase include the county’s $26.6 million funding obligation to finance a parallel raw water supply main (Cape Fear Public Utility Authority is financing its own portion of the project), debt service associated with the $137 million Northwest Water Treatment Plant upgrade and expansion, and increased operating expenses with running a low-pressure reverse osmosis (LPRO) system.

Beginning in 2022, Brunswick County will pay $2.9 million more in operating expenses to run the LPRO plant, according to the financial report, offset by a $500,000 reduction in chemical and electricity costs associated with losing H2GO and Leland, 17% of its volumetric user base.

In all, total water operating expenses will increase by 16%, from $16.3 million in 2021 to $19 million in 2022. Water debt service payments will quintuple by 2023; total water debt service payments rise by from $2.2 million (now) to $11.5 million (2023).

Including both total operating expenses and total debt service payments (which kick in by 2023), Brunswick County’s total water expenses will equal $30.9 million. This year, total revenues (including H2GO and Leland, rate, tap, and late fees, etc.) equal $26 million.

To counter this difference, Brunswick County is currently planning, based on recent feasibility reports, to increase user charges by 36%.

From a draft financial feasibility study. (Port City Daily image / Brunswick County)

Residential rates up 31%, wholesale rates up 89%

New rate increase figures set to go into effect in 2022 are overall higher than first presented in May for both residential and wholesale customers (including numerous municipalities). Across the board, base rates are each $1 higher than the May figures.

Volumetric rates for residential customers, currently $3.05 per every 1,000 gallons for the lowest (and most common) tier that were proposed to increase to $3.60, now look like $4 in 2022, a 31% increase (which was 18% before).

Increases are more significant for wholesale customers. These customers include:

  • Bald Head Island
  • Holden Beach
  • Navassa
  • Northwest
  • Oak Island
  • Ocean Isle Beach
  • Shallotte
  • Southport

First proposed to increase wholesale volumetric rates from $2.96 (current rate) to $3.95 in 2022 — a 33% increase — new rates show wholesale rates could climb as high as 88.9%.

At $5.59 per every 1,000 gallons billed, this stark jump could have major impacts for Brunswick County’s wholesale customers. The county’s wholesale customers will likely be inclined to consider passing on this increased cost burden to its own customers, resulting in unknown rate increases for those customers.

County’s take

In July, Brunswick County Manager Ann Hardy wrote to the Local Government Commission (LGC) when the county was still considering federal loan financing. The following excerpt from the July email sent to the LGC was obtained as part of a public records request:

The county is challenged with wholesale water customers who are involved in litigation and may construct a competing aquifer sourced reverse osmosis water treatment plant.  The construction of a competing plant may result in the appearance of an inferior and superior retail water causing more uncertainty for the county. The county’s planned plant would realize negligible savings if the scope is reduced due to the competing plant. The aquifer is not a viable alternative water source for the entire county since it will not provide an adequate supply of water. This competing water plant may result in the county losing up to 20% of the existing wholesale water customer base. This is further compounded since this is the area of the county that is poised to grow the most in the coming years. A loss of 20% of the customer base results in rates of over 50% higher to all the rest of the county’s customers. This is a significant impact on our existing industries and our ability to recruit industry for our 2 mega parks. For example, in our projections without losing 20% of our customers and having the favorable WIFIA capitalization and maturity terms our 3 largest industrial customers are projected to pay approximately $800,000 more per year in water charges. This is at a time when the largest is down-sizing employees.”

Asked for the source of the 50% increase rate figure that was attributed to the H2GO-Leland loss, Hardy said there have been many iterations of the financial study and calculation since the email. She confirmed the exact contribution of the H2GO-Leland loss had not been specifically accounted for in the recent Raftelis study. In an email response sent Thursday to Port City Daily, Hardy wrote to explain:

“Based on the bids we have in hand for the parallel raw water line and the projection of future bids for the plant expansion and the low-pressure reverse osmosis treatment system (LPRO), bond market interest rates, unknown [State Revolving Fund] financing award, conservative growth projections countywide, and payback schedules planned, the projected residential retail rate increase for county customers in 2022 with Leland and H2GO remaining as county water customers would be approximately $4 to $5 per month. 

Without H2GO & Leland’s participation in the County’s water system, the county residential retail customers are projected to see an increase of $9.18 per month in 2022. Keep in mind that this is based on a typical 4,500 gallon per month residential customer and the aforementioned variables. It should also be noted that the wholesale rates for other county customers such as Oak Island, Holden Beach, etc. will be impacted by Leland and H2GO leaving the county water system, and this will impact their residential customers as well.”

Brunswick County’s three largest industrial wholesale customers include Archer Daniels Midland (billed $1,044,905 last fiscal year); Capital Power Corp. (billed $509,915); Duke Energy (billed $180,466). According to Hardy, without Leland and H2GO, Archer Daniels Midland could pay $358,000 more; Capital Power Corp. could pay $172,000 more; Duke Energy could pay $49,000 more.

Presented with the study and its financial conclusions, H2GO’s spokesperson wrote in an email, “H2GO has not received any financial details from the County other than what you have provided to us in your email inquiry.”

H2GO had not been informed of a countywide rate increase or resulting rates including the potential loss of wholesale customers, according to the spokesperson. The utility could not provide any financial details that could further vet out information provided to Port City Daily or in the study.

Leland’s spokesperson responded to information provided to state the town was reviewing it, but could not immediately provide comment prior to press time. Additional responses will be updated if they become available.

Brunswick County Feasibility Report-2nd Draft 9-16-19 by Johanna Ferebee on Scribd


Send tips and comments to Johanna Ferebee at johanna@localvoicemedia.com

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