City Manager Charlie Funderburk and attorney Jim Sheedy spent just under an hour Monday night explaining their methods for determining a purchase price for the Utilities, Inc. system. Last year, nearly a half-million gallons of raw sewage overflowed from sanitary sewers into Lake Wylie. Documented sewage overflows date back to 2006.
It appears those issues — and those from a citizens’ group, among others — may have pushed the city to action. It’s not the first time the city has tried — but it may very well be the last.
>> NAMING THEIR PRICE
Last week, city council inked a letter of intent with the Northbrook, Ill.-based utility to buy the system for a previously undisclosed price of $5.8 million. Sheedy, under council’s direction, said that figure was a weighted average of three industry-standard methods of determining the value of a water and sewer system:
— The actual replacement cost of the physical plant using today’s technology and standards: $21.5 million minus $12.9 million depreciation, leading to a value of $8.6 million.
— Comparing the market value of the Tega Cay system to similar systems across the region. Out of 1,000 utility transactions in the Carolinas and Georgia, Sheedy said nine were of comparable value at $7.1 million.
— Assigning the value to the actual income using the present value cash flows. Tega Cay Water Service, under the Utilities, Inc. umbrella reports a net operating income of $551,907 and using a cap rate of six percent, the value was estimated at $7.5 million.
Sheedy said the city could run the system for just under $1 million annually, with a net operating income of $811,326.
Tega Cay Water Service, the local trade name for Utilities, Inc., wanted a quick sale of the system, Sheedy said, adding the company would have liked to have sold the system, “yesterday.”
>> FIXING THE ISSUES
Addressing the chronic overflows, however, was not addressed in the appraisal of the system. An in-depth study by city utilities engineer Joel Wood found it would cost $6.5 million to fix the system, including:
— Cleaning and painting of an elevated storage tank.
— Replacing existing water meters.
— Upgrades and rehabilitation of 20 lift stations.
— Replacing or repairing 29 miles of sewer lines.
— Adding additional redundancy capacity to wastewater treatment plants 2 and 3.
— Adding backup generators to wastewater sites.
If the city’s purchase of the system moves forward, the city would seek a $6.5 million loan from the state. That would equate to a $3 per customer per month sewer rate increase. If Utilities, Inc. were to retain ownership of the system, those same repair costs could cost customers between $38 and $50 more per month.
At a public hearing Monday night, nearly two dozen residents spoke in favor of the city’s plans to move forward buying out the system.
“I think this company was ready to do anything to get rid of us,” said Linda Stevenson, head of a citizens group critical of Utilities, Inc. “I would love to see the entire state of South Carolina get rid of Utilities, Inc.”
Mayor George Sheppard who, like Stevenson, is a Utilities, Inc. customer, defended council’s in-depth study of the issue — one that has been tried twice before.
“I think we did the right thing,” Sheppard said. “I think time was on our side.”
Sheedy said the city’s purchase of the utility system would not bankrupt the city.
“It is probably going to be painful short term to synthesize this system,” he said. “Long term this gives the city a fabulous opportunity at economies of scale…it gives the city a lot more control over its own destiny.”