Henderson Mayor Clem Seifert is expected to sign a contract today that will give the Kerr Lake Regional Water System seven more months of the status quo with the Army Corps of Engineers. (Update: The contract arrived by FedEx and was signed about 4 p.m.)
At a special meeting Tuesday night, the City Council authorized Seifert to sign the second consecutive extension of the water withdrawal deal that launched the water system in 1974. The vote was unanimous; Harriette Butler, John Wester and Lonnie Davis missed the 10-minute meeting.
The head of the Corps of Engineers’ Wilmington District, Col. Charles R. Alexander Jr., already has signed the contract.
With the exception of running for seven months instead of 12, the new contract extension matches what the city and the Army Corps of Engineers signed in May 2004. The pact between the United States and the city of Henderson allows the city, as the managing partner of the regional water system, to take up to 20 million gallons per day from Kerr Lake at a price of $9.60 per million gallons.
The water system is drawing 7 million to 8 million gallons most days, so Henderson will pay roughly $14,000 to $16,000 during the seven-month life of the contract extension.
That could be the last period of bargain-basement prices for the water system.
The Army Corps of Engineers wants to replace the twice-extended 1974 water-withdrawal contract with a water-storage contract that charges the city based on the cost of Kerr Lake. The Corps of Engineers wants to use the theoretical cost of building Kerr Dam today; the city wants to base the price on 1974 estimates.
All of which boils down to the city’s desire to keep its costs basically the same, while the Corps of Engineers wants Henderson to pay about 10 times as much per year.
“It won’t be long before we are possibly in an adversarial position with the corps,” Seifert said. The two sides are struggling in Washington over a water authorization law. The city hopes it will include language mandating the 1974 prices for the use of Kerr Lake water.
The disagreement stretches back to the original contract, which went into effect May 30, 1974. As the contract extension, technically called a modification, reads, “that contract contemplated that it would continue in force and effect until a new contract providing for water supply storage space was executed, or for a period of 30 years from its effective date, whichever occurred first.”
Despite being pressed by the city, the Corps of Engineers has yet to propose a water-storage contract. When the two sides signed the first extension in May 2004, the idea was to use the extra year to hammer out that new contract, but little progress has been made. That extension expired at midnight Tuesday.
The key element for the Corps of Engineers is a water storage reallocation study that will help the federal agency decide how much it wants to charge Henderson. Former water plant director Mike Hicks said in April that the amount is likely to be $4 million to $5 million, which the city could finance over 30 years.
Such an increase in the cost of water would have to trickle down to the regional system’s customers in the form of higher prices. Without a firm offer from the Corps of Engineers, it’s hard to estimate the rate impact, but it would be much less than the proposed $21 million expansion of the water plant to a production capacity of 20 million gallons per day. The worst-case scenario for the plant expansion is an increase of $40 per year for the average residential water customer in Henderson.
City Manager Eric Williams told the council Tuesday that the Corps of Engineers anticipates having the water reallocation study in hand by the middle of June. The contract extension states that the study should allow the Corps of Engineers to have a new contract ready by Sept. 15.
But Williams said the city has heard such talk before. “I wouldn’t really expect to hammer this stuff out between now and Dec. 31.”
The contract extension initially called for the city and corps to use the water reallocation study as the basis for the new contract, but Williams got the corps’ Allen Piner to restore the no-strings language in effect for the past year: “During the period of this extension, the parties hereto will work with all
due diligence to negotiate a new contract.”
The concern was that the rejected language would commit the city to accepting the corps’ proposed rate structure. Instead, the two sides can negotiate freely here while lobbying in Washington.
It’s not a process the city side expects to end soon.
When Seifert asked why the Corps of Engineers didn’t want an extension for a full year, Williams said: “I guess there are some optimistic expectations.”