Monday, April 22, 2024

‘Give a little, take a little’: H2GO-Leland merger settles competition, raises questions

(Left) H2GO Commissioner Bill Beer speaks at a joint H2GO and Town of Leland meeting on March 19 when the two boards voted unanimously to merge utility systems. (Port City Daily photo/Mark Darrough)
(Left) H2GO Commissioner Bill Beer speaks at a joint H2GO and Town of Leland meeting on March 19 when the two boards voted unanimously to merge utility systems. (Port City Daily photo/Mark Darrough)

BRUNSWICK COUNTY — Last week’s kumbaya between longtime adversaries Brunswick Regional Water and Sewer H2GO and the Town of Leland is, on paper, a good idea.

Among a dizzying patchwork of utility providers in northern Brunswick County, the two public systems have competed with one another for years — and not necessarily for the betterment of the public.

RELATED: After years competing, Leland and H2GO agree to merge utility systems

There are several areas in northern Brunswick County where redundant utility lines lie — not for emergency backup, but rather to reach certain developments, regardless of whether it would be more feasible for the other system to reach them instead.

The disorderly combination of providers and political turmoil has deterred developers and confused new residents.

Along with the neighboring and tiny town of Belville (which illegally acquired H2GO in 2017), the three public bodies have collectively spent millions fighting one another in and out of the courtroom.

The fight boiled down to a decades-long beef between dueling towns and utility rights surrounding the fastest-growing N.C. town over the past decade. As of last week, both motivations appeared to have officially settled.

Inevitably, questions remain.

Brunswick County officials and business leaders continue to raise ethical and legal concerns about the merger, which H2GO and Leland officials unanimously approved Mar. 19.

Leland and H2GO officials essentially say there’s nothing to be concerned about, while county and business leaders say their questions have gone unanswered.

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Growth, competition

An independent sanitary district formed in the ‘70s, H2GO predates Leland (incorporated in ’89). In the years since, the once-rural provider has grown to serve about 25,000 people and answers to no local government.

Meanwhile, the Town of Leland has grown 1,250% since it first started providing utility service in the early 2000s, according to town manager David Hollis. Old H2GO lines actually first put Leland in the water business in 2009, when the developer of Brunswick Forest requested the switch.

In recent years, the two have competed for customers. 

Tensions erupted in 2017, as the community reckoned with the summer’s news of industrial contaminants in the treated water supply. H2GO’s lame-duck board voted to transfer all of the utility system’s assets — valued at $60 million — to the Town of Belville (population 2,137).

The board did this to “save” its partially constructed reverse-osmosis plant (planned before news of the water crisis broke) and insulate itself from Leland, whose leaders had attempted to thwart H2GO’s efforts to obtain a permit for the plant, calling it unnecessary, unreasonable, excessive, and expensive. Fearing the incoming H2GO board would kill the plant (two out of the three elected campaigned on opposing the plant), the outgoing board members also felt the new board was too cozy with Leland.

Leland sued and won. Belville appealed but later withdrew.

In the midst of the north Brunswick legal entanglements, the county decided to pursue its own reverse-osmosis treatment system to deal with the contaminants crisis while H2GO’s plant hung in legal limbo. In 2019, county leaders said they would be open to building H2GO’s plant and urged local utilities to consider partnering for a cohesive, county-wide utility system (at 19 municipalities, Brunswick has the most in N.C.). After the county’s public plea to consolidate, Northwest handed over its accounts in January 2020 and Navassa followed suit in July 2020.

The county will lose its largest wholesale water customer when H2GO’s plant goes online, making up 10% of its water revenues and 14% of its per gallon usage. In losing Leland to H2GO, it will now also lose 2% of its revenue at 3% of its per gallon usage.

Varying utility providers in Town of Leland limits as of August 2019. (Port City Daily graphic/Courtesy Town of Leland)

Once the legal proceedings settled, Leland had a choice: buy RO-treated water from the county’s or H2GO’s plant.

At a joint hearing, Hollis explained the town had engaged in “parallel” talks with both the county and H2GO over the last few months. The town essentially shopped for the best plan and partner.

“The Town considered proposals from both Brunswick County and H2GO, but ultimately determined that a joint undertaking with H2GO whereby assets are held in joint ownership was the optimal path forward that will allow the Town and H2GO to serve their customers better and grow together in a coordinated manner,” Hollis wrote in an email Friday.

The evening before the agreement was inked, Hollis said the county “was not interested” in a joint partnership with all parties. Shortly after, Brunswick County Chairman Randy Thompson said in a county press release Leland —which initiated the talks — was only interested in “empire-building.” Commissioner Mike Forte said Hollis and town council were fabricating the truth

Hollis apologized the next morning, explaining the town’s negotiations with county leaders.

The agreement

For years H2GO’s physical positioning in prime would-be Leland town limits presented a problem. Now, that problem will serve as a solution.

Leland’s borders are incongruous. As a younger town, Leland missed out on the forced annexation benefits other municipalities latched onto before 2012, when the legislature severely limited involuntary annexation.

The jagged aerial puzzle also translates on the ground; it’s unclear where the town (or Belville) begins and ends.

As Leland grows, town administrators want to smooth out its borders so it can develop a more cohesive sense of place. Expanding town limits also means expanding the town’s tax base, which means more revenue to provide more services.

With the agreement locked in, Leland is in a prime position to offer utilities to developers. In fact, the town has the exclusive right, per the agreement, to offer services to new developments in a large area that extends well beyond existing town limits (everything in grey on pg. 28 of the agreement). Utilities will likely be used as a bargaining chip in discussing annexation with developers — which by law, must take place voluntarily.

David Hollis (center) speaks with Brunswick Forest property owners at a town-organized petition signing session in October 2019. (Port City Daily photo/Johanna F. Still)

The town’s aggressive path toward annexation has irked many of its neighbors, both residential and municipal.

Before the pandemic, the town went on an incentive spending spree, offering more than $1 million in combined incentives to developers tied to annexed projects while promising utilities.

In a lengthy analysis prepared before the first attempted merger failed, H2GO director Bob Walker questioned the legality of this arrangement. Tuesday, Walker said he had no further concerns.

A previous iteration of this agreement (which failed in October 2019 and February 2020) included a large potential annexation area for Leland — a chief reason H2GO officials cited when pulling out of the deal.

Tyler Newman, president of the business advocacy group Business Alliance for a Sound Economy (BASE), outlined dozens of pointed questions to the town in an email before it approved the merger. 

Many of the concerns relate to annexation. Newman interpreted the agreement as meaning forced annexation for developers. 

He asked: 

  • “…[W]hat happens in a master planned subdivision currently in Brunswick County with existing H2GO utilities? For the next phase of the development, is the developer required to annex into Leland to get water and sewer? Is that legal?…”
  • “What are the neighborhood dynamics of two virtually identical houses across the street from one another—one in Leland and one in Brunswick County? 
  • Why would a buyer pay additional taxes for the Leland house?”

None of the substantive issues he raised had been answered, he said.

Newman also inquired whether the deal should be approved by the Local Government Commission and how exactly the arrangement might be governed upon merging. 

Friday, an LGC spokesman said neither party had reached out to review or seek approval of the transaction. The spokesman identified three outstanding loans Leland has for its sewer system. 

“Unless these loans will be paid off as part of the merger, the LGC will have to approve the merger and transfer of liabilities with the merger,” the spokesman wrote in an email. It appears the loans were transferred — not paid off — as part of the merger. 

At the town’s public hearing on the matter Thursday evening, Newman criticized the lack of public input and opportunity to weigh in on the proposal. A draft of the agreement had been made available just one week prior.

(Though the public hearing wasn’t required, Hollis said it was an example of good governance in an effort to be transparent.)

“This is a multimillion-dollar, multi-year, major discussion with ramifications that are not just here in the town and in the H2GO service area but for Brunswick County and also in the region as a whole,” he said. “And I think y’all are absolutely rushing it.”

Tuesday, Newman was still disappointed in the lack of information made available. A true regional compromise would include Brunswick County, according to Newman. “With the regional impacts this merger will have on existing citizens, local governments,  future investment and economic development, we believe all the facts should have been out in the open and all the players at the table before rushing through a deal,” he wrote in an email Tuesday.

Another issue is the possibility of taxation without representation. In the agreement, Leland and H2GO include provisions to prevent the disenfranchisement of their residents and utility customers.

“There is no taxation without representation created by our joint undertaking with the sanitary district,” Leland Mayor Bozeman said Friday.

As a sanitary district, customers must be annexed into the district in order to vote in its elections. Leland residents not served by H2GO (Brunswick Forest, Windsor Park) won’t immediately get annexed into H2GO district boundaries, but will join by following specific steps outlined in § 130A-69, which governs how a sanitary district can expand. “Areas within Leland boundaries, which are not currently within the District’s boundaries and now served by the District’s operations, will be brought into the District’s boundaries by using the appropriate statutes,” Hollis wrote in an email Friday.

(Before the first attempted merger failed, Leland preemptively initiated this process — which involves getting 51% of residents in a potential area to sign a petition to avoid an election to get annexed into district boundaries — with hundreds of residents before all parties had come to an official agreement.)

Tuesday, Chairman Frank Williams said he was concerned about annexation and disenfranchisement. 

“There are many unanswered questions, and I remain concerned about any provisions that could require unincorporated landowners to annex in the Town in order to gain utility service,” he wrote in an email. “I am also concerned about H2GO expanding outside the boundaries of those who are able to vote in its elections. I believe Brunswick County residents would be well-served by the economies of scale and increased efficiencies offered by a single countywide utility operated by the only entity whose elections are open to every county voter: Brunswick County Public Utilities.”

As part of the merger, H2GO is absorbing all of Leland’s obligations per its development agreements, its liabilities, about $16 million in cash, seven utility employees, and an assortment of the town’s $66 million in physical assets. Some assets are being conveyed completely (water tower). The town will maintain half ownership in all of its utility distribution lines.

H2GO Commissioner Barry Laub speaks at a joint H2GO-Town of Leland meeting March 19. (Port City Daily photo/Mark Darrough)
H2GO Commissioner Barry Laub speaks at a joint H2GO-Town of Leland meeting March 19. (Port City Daily photo/Mark Darrough)

In all likelihood, the merger will improve customer experience and reduce confusion. But how will it impact rates?

Walker explained initially, Leland utility customers will see their bills increase by $3.63. By next year, Brunswick County will increase its wholesale water rate (charged to big customers like Leland, Southport, Oak Island, etc.) to $5.29 per 1,000 gallons — an 83% increase, necessitated by the RO upgrade and system expansion. 

With Leland leaving Brunswick County as a customer, bills will be a minimum $3.45 less with H2GO than if the town would have stayed, according to Walker. Residential county customers will pay $13.3 more than H2GO customers by 2022, he said. 

After losing all 2,300 of Leland’s water accounts, the county will not have to recalculate its 2022 rates, according to county spokesperson Megan Kascsak. 

What changed?

Somehow, officials made working out years of bickering last week seem easy. Unlike previous attempts to merge, this time, there were no dueling press releases. There were no under or overhand jabs. 

What changed? For starters, the first time the agreement failed it was in the midst of a heated election season, which swung H2GO’s political power away from Leland toward Belville.

“Many of the distractions that delayed previous discussions were satisfied,” Mayor Bozeman wrote in a statement Friday. 

“Both the Town and H2GO have always shared a common goal – providing quality service to northern Brunswick County residents, even as the area continues to grow – and we were able to come to the table with that shared goal in mind,” she wrote. 

Before, the agreement was entangled with settling the ongoing lawsuit. Walker blamed the lawsuit, election cycle, and outside influences on the previous failed merger attempts. “In 2021, with those distractions behind us, H2GO and Leland staff were better positioned to amicably meet, discuss, consider, negotiate, and draft an ILA that is best described as a genuine joint undertaking that will be extremely beneficial to our community and our utility customers,” Walker wrote in an email.

Asked to respond to criticism posed regarding annexation and disenfranchisement, Bozeman said the town looks forward to improving its services.

“We have been fortunate to continue to have new residential units and businesses that choose to be a part of the Town in order to obtain the kinds of services we offer,” she wrote. “Our focus is on being proactive about enhancing and expanding those services as we grow. We hope we can continue to offer attractive services that are crucial to well-planned development in our area.”

Commissioner Rodney McCoy said he’d characterize the new agreement as less of a change of heart and more of a compromise.

“It’s give a little, take a little,” he said. “Overall, I think it’s real good.”

Send tips and comments to Johanna Ferebee Still at

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