The Kerr Lake Regional Water System hopes within two months to have commitments from all three partners to proceed with an expansion that should provide enough water to carry the region through 2025.
During a lunch meeting of the system’s advisory board at the water plant Wednesday, representatives from Henderson, Oxford and Warren County pledged to seek approval from their governing boards within 60 days. With the blessing of the Henderson City Council and the Warren and Oxford commissioners, the water system could proceed to put the $21 million project out for bid.
The advisory board members and the accompanying government employees are unanimous in their support for the expansion to a capacity of 20 million gallons per day (MGD) from the current 13 MGD, so Wednesday’s meeting was an opportunity to review the facts, consider the complications and strategize for overcoming opposition.
“The only mistake you ever make with water and sewer is not building enough,” said Oxford’s public works director, Larry Thomas.
Dean Ramsey of engineering firm EE&T made a presentation on the scope and costs of the proposed expansion of the water plant. The information echoed what he told a Henderson City Council budget work session a week earlier and was largely a recap for advisory board members.
The expected $21 million cost of the project includes about $1 million already spent from the Regional Water System’s reserve on planning and engineering. It also marks an increase from a projected price of $15 million three years ago, said Mike Hicks, the longtime plant director, and that included the new raw water intake facility, which is now a separate $3.6 million project.
Ramsey’s worst-case scenario is that the project will raise regional water rates from $1.215 per thousand gallons to $1.66, which would add $3.34 to the average monthly residential water bill beginning in late 2007 or 2008.
A lot of assumptions go into those figures, starting with financing terms of 4.25 percent interest and 17 years. More favorable financing or grants would lower the rate impact. Also, Ramsey said, the water system could raise regional rates now for the first time in at least three years and bank the surplus to pay down the debt at the start of the expansion.
Such an increase would affect the price the water system charges customers such as Franklin County but would not necessarily increase water bills in Henderson. Ramsey said the Kerr Lake Regional Water System’s wholesale prices are well below the industry average.
On the other hand, construction costs, particularly for steel and concrete, have jumped as much as 20 percent in six months, and those costs could keep rising. Ramsey and Assistant City Manager Mark Warren estimated that Henderson, the water system’s managing partner and majority stakeholder, wouldn’t be able to sign construction contracts before November.
That probably won’t be enough time, Ramsey said, to conclude negotiations with the state Department of the Environment and Natural Resources on an increase in the amount of water the system may pipe out of the Roanoke River Basin and into the Tar-Pamlico and Neuse basins.
But another factor in water prices should be known by this summer: how much the Army Corps of Engineers wants to charge the water system for drawing on Kerr Lake.
Uncertainty over the water storage contract with the Corps of Engineers was one of the reasons council member Elissa Yount expressed doubts about the 20 MGD project at last week’s budget session. She said she doesn’t know how the city can commit to such a project when it has no idea how much water will cost.
Henderson’s 30-year water contract with the Corps of Engineers expired last spring. The two sides are operating under a one-year extension now, and Hicks said the corps agreed this week to another one-year extension to provide time to negotiate terms for the next 30 years.
Hicks said the corps is 99 percent complete with the studies necessary to make an offer to Henderson, which should come in the next couple of months. He said Corps of Engineers officials acknowledged a ballpark figure of $4 million to $5 million over 30 years.
While that range would represent an increase of more than a factor of 10 in the amount the Regional Water System pays the Corps of Engineers each year — from less than $14,000 now to as much as $167,000 under a new contract — the impact on water fees should not be significant.
Ramsey’s presentation showed that each nickel increase in the fee for 1,000 gallons of water would produce $114,975 a year now, $144,450 a year under conservative estimates of water sales in 2007-08 and $182,500 a year if the system sells 10 million gallons of water per day.
A 5-cent increase in water rates would add less than 40 cents per month to the average residential water bill.
City Council member John Wester, the head of the advisory board, repeated Wednesday what he said last week in response to Yount: The water system will never have answers to every issue that could affect rates and usage.
The expansion of the plant alone won’t force any increase in water prices if the regional system sells enough water. Ramsey estimated that each additional 500,000 gallons per day produces a profit of $180,000 a year now.
The water system now averages around 6 MGD, and Ramsey projected sales of 7.92 MGD in 2007-08, the first year an expanded plant could be operational. If sales rise to 11.634 MGD that year — 47 percent above current projections — the profit will pay for the plant expansion without any rate increase.
“This will be paid for by new users,” Wester said. “The key is sales.”
He acknowledged that the three partners in the water system have seen a dip in demand because of the loss of such industrial customers as Harriet & Henderson Yarns and Lenox China, but “that’s a blip on the screen” and won’t last.
“We need water sales,” Wester said. “To have sales, we need capacity.”
The biggest unknown is how much capacity the water system will need and when.
Under Ramsey’s projections, the water plant will face an average daily demand of 10.13 MGD in 2010, with peaks approaching 13 MGD. In other words, EarthTech engineer Mike Acquesta said, without an expansion, the plant will be at capacity within five years.
Ramsey and Hicks said construction of the expanded plant would take up to three years, meaning that if work began at the end of this year, the expansion wouldn’t be complete until mid-to-late 2008.
Advisory board members said Ramsey’s projections might prove to be too low.
Thomas and Oxford Commissioner Pete Kiesow said Granville County is talking about dramatically increasing water purchases over the next 25 years to supply the new water and sewer authority in the southern part of the county.
Ramsey’s projections, which show the water system facing an average daily demand of more than 16 million gallons and peaks above 18 million gallons in 2025, are based on Granville’s water purchases topping out at 1.3 million gallons per day. Now Granville says it might need 5 million or 6 million gallons per day in 2030.
At that level of demand, Thomas said, “we’re not talking about a 20 MGD expansion, we’re talking about 30 MGD.”
The current projections also make no allowances for the planned industrial hub of about 1,000 acres straddling the Vance-Granville line. Kiesow said the first prospective industry for the hub would need 500,000 gallons per day within two years.
The worst economic development scenario imaginable, Henderson City Manager Eric Williams said, would be for the hub to be a huge initial success, then to have to turn away companies in a couple of years because of a lack of water capacity.
Even without new sales to Granville and another industrial user that Kiesow said is discussing buying 500,000 gallons per day, Oxford is projected as producing most of the increased water demand in the next two decades, rising from less than 2 MGD in 2007 to nearly 7 MGD in 2025.
Customer Franklin County’s demand is projected to rise from 1.65 MGD in 2007 to 3 MGD, the maximum allowed under its contract with Henderson. But that rapidly growing county might look to buy water from Warren County as well.
“The reality is that Franklin County has the ability to have a hub without even having a hub,” Wester said of Franklin’s economic strength on Wake County’s northern border.
Henderson’s demand is expected to increase by about 2 MGD to about 4.5 MGD from 2007 to 2025; if Vance County goes ahead with a water system, Henderson would meet that need out of its allocation.
Warren County’s need is projected to rise by about 500,000 gallons to 2.2 MGD. Warren’s public works director, Macon Robertson, explained that Warren’s customer base is almost entirely residential, although he’ll happily sell part of the county’s allocation to Northampton and Halifax counties if they need the water.
“It’s good for everyone when you sell it,” Ramsey said.
Despite the talk of water demand exceeding projections, Ramsey said it would be a mistake to build a 30 MGD plant now. EE&T would have to go through a lengthy, costly process of recalculating everything about costs and rates, and the capacity would go unused for a decade or more. At most, the water system should plan on its next expansion about five years earlier than previously expected.
That assumes the current expansion moves forward. The representatives of Henderson, Oxford and Warren pledged to bring a recommendation before their respective boards to approve putting the expansion out for bid, something Ramsey said should be possible within 120 days.
Henderson, which has the power but not the desire to proceed against the wishes of its partners, is likely to act first. Wester would like the City Council to hold a special meeting to do nothing but discuss and approve the expansion. The other two Henderson representatives on the advisory board, council members Bernard Alston and Mike Rainey, missed Wednesday’s meeting.
Kiesow said Oxford’s 4-3 split on its Board of Commissioners always concerns him, but Thomas said “there’s no question” Oxford will support the 20 MGD expansion.
Warren County’s elected representative to the advisory board, Commissioner Clint Alston, missed the meeting, and that county’s Board of Commissioners has an often-bitter 3-2 split. But Robertson said he’ll bring the board a strong recommendation for approval. He said the potential revenue from water sales should be a compelling argument.
Williams said that even if all three boards approve the expansion and the water system puts the project out to bid, the decision won’t be irrevocable. If the bids come in so high that water sales couldn’t cover the price, Henderson could drop the project before signing any contracts.