BEAUFORT — Carteret County commissioners have two options when it comes to the county-owned water system that serves about 1,200 customers.
Commissioners can either vote to sell to one of two private companies, despite protests from numerous residents, or deal with a system that will most likely be identified as a distressed unit, or system that isn’t profitable enough to be self-sustaining and maintained, by the State Water Infrastructure Authority.
County Manager Tommy Burns told the board of commissioners during its April 19 meeting at the county courthouse that the authority discussed the county’s system during its April 14 meeting. The authority is an independent group that awards funding for water and wastewater infrastructure projects. Authority members decided to hold off due to the potential sale to companies that have been in a monthslong bidding war.
The board of commissioners is scheduled to meet at 6 p.m. Monday, May 17, for its monthly meeting but the agenda does not include discussion regarding the sale of the water system or its potential to be considered for distressed status. Opponents of the proposed sale say they plan to be there anyway to speak during public comment, including those from the Carteret County for Public Water group that believe a sale to a for-profit company could lead to higher rates and poorer water quality.
Selling the system was first discussed in December 2019 when the county received a grant from the state to study a potential merger of the system with the town of Beaufort. In March 2020, Beaufort told the county no on the merger, but two private utilities did express interest after learning about the study. Between last summer and January, county staff met with both parties and the bidding began with Carolina Water Systems Inc. of Charlotte submitting in January an unsolicited offer of $4.9 million and Aqua North Carolina an unsolicited bid of $7 million.
There has been a back and forth between the two companies on upset bids. Rachel Hammer, county clerk, received April 27 the latest upset bid of $9.5 million from Carolina Water, and ran a legal ad May 2 in the Carteret County News-Times with the latest amount, starting the 10-day upset bid process yet again. The upset bid expired at 5 p.m. Wednesday.
“The potential of selling the system has caused the State Infrastructure Authority to table designating the system as distressed,” Burns explained in April. If the authority does label the county water system as financially distressed, “there’s a lot of issues that we’ve got to go through as a community,” including commissioners undergoing special training to learn how to make the system more profitable and how to make it a truly user-fee supported system.
The authority determines if a system is distressed status, which is a public water system or wastewater system owned by a local government showing signs of failure to make enough money to be managed, operated and maintained, based on 2020 legislation and criteria adopted in November. Establishing criteria to determine if a unit is distressed, such as if it serves less than 10,000 customers and costs more to operate than it makes annually, is a step for the authority to distribute $9 million through the new viable utility reserve grants to help local governments with infrastructure, study rates, or look into alternatives that provide a long-term, viable solution.
Jon Risgaard, acting division director for the North Carolina Division of Water Infrastructure, told Coastal Review in an email last week that if the county sells, it removes them from the viable utility process simply because that only applies to municipal systems, not private.
“But they do not have to sell. For them, they have some inherent challenges (customer density, high rates, revenue doesn’t cover expenditures) and the viable utility process makes sure there is a plan to address those challenges,” he said.
Gene Foxworth, planning director and assistant county manager, told Coastal Review Monday that the discussion on the system being distressed revolves around the fact that the system is supported partially by a district tax, not solely by usage billed monthly.
The county commissioners may look at increasing the rates charged for usage to fully support the system, he said.
Currently, updates to the system discharge needs to be made but “With an approximately 20-year-old system, other upgrades will be required in the future as with any aging asset,” Foxworth said. The system has reached 50% of its lifespan, or depreciated by half since it was built 20 years ago.
Burns explained in April that the authority looks at the debt service coverage ratio, and “one of the things that is probably going to be a detriment to us is that the system should not be supported by other funds such as the water taxing district.”
He said that an enterprise utility fund should be self-supporting through user rates and fees but the county system, in addition to rates and fees based on consumption, relies on a water district tax subsidy.
The water district is assessed at 5.5 cents per $100 for all parcels in the district, regardless of whether the taxpayer is a user of the water system or not. About $330,000 is generated annually from the water district tax and there’s an additional $90,000 in sales taxes generated annually.
There’s about 3,720 parcels in the water tax district but only 1,208 are on the system, so 2,590 are paying a tax on system they don’t use.
The system operates at an average annual loss of $110,184. “Substantial rate increases will be needed to maintain the system,” Burns said, adding that there had been a 15% rate increase during the past year.
“I think for so many years the emphasis was just on providing the water service, as opposed to making sure it was fair and ethical for all the taxpayers in the county and not subsidized,” Burns said.
Another factor that would make the system distressed under the authority’s criteria is that the system serves less than 10,000. “So obviously we come up on the radar screen just because, you know, our system only supports about 1,200 customers,” Burns said.
Beaufort resident Patrick Kelly is one of the 1,200 customers and helped form the Carteret County for Public Water group to voice opposition after learning about the potential sale following the February board meeting, when it was first discussed in public.
Residents, including Kelly, spoke out against the proposed sale during the public comment portion of the March commissioners’ meeting and commissioners gave the group an expanded opportunity to address the board during its April meeting.
Kelly said in a follow-up interview with Coastal Review that he believes not selling the system, even if it becomes distressed status, would allow for time remedy the situation.
“I also believe that with a rate increase of less than would be possible under a private, for-profit company could keep the county from having a distressed system,” he said.
Kelly in a social media post Tuesday wrote that some members of the group met with two of the county commissioners where they discussed further ideas of “how we can all work together and keep the system maintained by the County” and they intent to meet with other commissioners.
“We still plan to attend the meetings and voice our opinion during public comment and ensure that the commissioners know we are still concerned,” Kelly said.
Burns reiterated during the April 14 meeting that the county had not agreed to sell the water system and at any time in the process the county has the right to reject any and all offers for any reason or for no reason. He added that the bids were unsolicited but the county decided to move forward with the upset bid process, per state law.
If the sale of the system is approved by commissioners, there would need to be additional appraisals, a purchase agreement negotiated and agreed upon and other due diligence executed by the high bidder, which involves inspecting the system. The final authority on the sale would come from the North Carolina Utilities Commission, Burn said.
If the system is not sold and the authority determines the county meets the criteria for a distressed system, the county would have to complete several steps, including special training for the commissioners making the system financially viable and self-sustaining as well as develop plans to maintain and repair the facility, he added.
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