Elizabeth City customers could experience sticker-shock on their monthly bills if the city sells its water and sewer system to an investor-owned utility, a consultant told city councilors this week.
Keith Readling of the Charlotte-based consulting firm Raftelis told council Monday night that if the system is sold water and sewer rates would likely increase by at least 36 percent. Rates could go even higher if the investor-owned utility made capital improvements to the system, Readling said.
Monthly water and sewer rates for city utility customers who live in the city limits are currently $22.44 and $13.88, respectively, for a total of $36.22. According to Raftelis’ analysis, those monthly rates would increase to $30.51 for water and $18.87 for wastewater — for a total of $49.38 — if the system were sold to a private entity.
Customers outside the city, who now pay an extra $7 a month, would see their rates rise about $15.59 more, for a total of $58.91 a month.
Readling told councilors there are several advantages to selling the system, the largest being the city could use proceeds from the sale to fund other projects. The water and sewer system has a book value of around $48 million but it could sell at a higher price, Readling said.
Readling’s appearance at Monday’s council meeting was in response to City Council’s directive to City Manager Rich Olson late last month to come back with the pros and cons of selling the city’s water and sewer system.
Councilors were considering approval of a project to replace the city’s water meters, but delayed the decision Jan. 27 after several councilors said they wanted to explore the option of selling the water and sewer system.
The system currently generates $8 million a year in revenues for the city but Readling estimated an investor-owned utility would need yearly revenues of $10.9 million, or a $2.9 million increase, to get the needed return of investment to satisfy its investors.
“That’s a 36-percent rate increase,” Readling said. “Almost undoubtedly, a private utility will raise rates. Whatever your rates are, theirs will need to be higher.”
That $10.9 million figure an investor-owned utility would need to satisfy investors is based on it operating and maintaining the system at a 25-percent reduction from the current cost of operating and maintaining water and sewer.
“If they can’t run it any better than you, they will need a lot more than a 36-percent rate increase,” Readling said.
The city currently sets water and sewer rates but would lose that control if the system is sold. An investor-owned utility would have to get approval for rate increases from the North Carolina Utilities Commission but Readling said the commission recognizes that private utilities must get a return on their investment.
“The North Carolina Utilities Commission is likely to agree to a 7.5-percent return on investment based on what I have seen them do,” Readling said. “They have to make a profit. They have to make money to stay in business. You wouldn’t want them to not make money.”
In addition to having a large infusion of cash, an investor-owned utility would assume from the city all the operational, regulatory and economic risks of running the system.
What happens to the 36 employees currently employed across three divisions of the system — water treatment, wastewater treatment and water and sewer maintenance — is another concern. If the city sells, an investor-owned utility would still need personnel to run the system but Readling said there is no guarantee that every employee would be retained by the new utility.
Even if all, or even some employees, are retained they also may not receive all the benefits from the investor-owned utility that they currently receive from the city.
“The utility that bought your water and sewer system might contract to hire them,” Readling said. “That wouldn’t be real uncommon. The job also becomes a different job. A job with the city of Elizabeth City might not be the same with a private utility in all ways.”
An investor-owned utility would also not be eligible to receive grants for infrastructure improvements. Conversely, the city has received six grants totaling $3.5 million the last five years to use for improvements.
Councilors took no action after Readling’s presentation Monday on whether or not to move forward with selling the water and sewer system. They did vote 5-2, however, to restart the process of possibly replacing all of the city’s water meters.
Councilors Billy Caudle, Darius Horton, Jeannie Young, Chris Ruffieux and Kem Spence voted to restart the water meter replacement project. Councilors Johnnie Walton and Michael Brooks voted against the proposal.
City officials have said the meter replacement project is expected to increase city water revenues by 5 percent as a result of better efficiency in the system.
Olson said it will take between 60 and 90 days before city staff can bring back a new water meter replacement proposal for council to consider. The city must restart the water meter project in part because the contracts for the purchase and installation of the meters and for the financing rate it received to fund the project have expired, or will soon expire. The original cost of the water meter project was approximately $5 million.
“We have to start that process all over,” Olson said. “In order to get that back in front of you with new numbers, it will take at least 60 days, maybe even 90 days to do that.”
Olson also said at Monday’s meeting that he will propose a water and sewer rate increase in the city’s next fiscal budget in order to make capital improvements to the system. Olson is also going to propose an electrical rate decrease that could offset any economic impact from a water-sewer increase on ratepayers.
Council voted at the Jan. 27 meeting to spend approximately $2.5 million to replace all the city’s electrical meters.