Commissioners’ Report to H2GO Customers

Your H2GO Board of Commissioners is ever mindful to closely appraise in-house operating expenses with an awareness to monitor outside influences that affect customer water rates.  For example, H2GO buys finished water from Brunswick County Public Utilities (BrunsCo PU) who in turn buys raw water, drawn from the Cape Fear River, from the Lower Cape Fear Water & Sewer Authority (LCFW&SA).  For some time, there has been a growing realization that these wholesale water providers will need to undertake large-scale infrastructure improvements to meet the growing water demands of our region.  Their proposed multi-million dollar projects could significantly increase the cost of water to H2GO, ultimately raising the rates and charges to you for water service.    With these realizations in mind, the H2GO Board of Commissioners sought to investigate alternative water supplies, including the possible construction and operation of our own reverse osmosis water treatment facility - thereby eliminating our dependence upon wholesale water providers, their wholesale water fees, and their surface water supplies from the Cape Fear River.  This “Commissioners’ Report to H2GO Customers” was prepared to provide an overview of the measured approach taken by H2GO to investigate alternative water supplies; the steps and actions pursued by the Board; the scientific reports and field data analyzed for “Go or No-Go” decisions along the way; and a summary of “What’s Next” as we seek to find the best solutions for the lowest possible customer rates; and as we continue to plan for tomorrow’s water needs – Today.

Phase 1 – Water Supply Feasibility Study

July 2011 – H2GO commissioned a Water Supply Feasibility Study to evaluate alternative water supplies to meet future needs based on anticipated future service areas and customer growth over a 20-year planning period.  This study evaluated the feasibility of 1) obtaining surface water (Cape Fear River) supplies from the LCFW&SA with a new surface water treatment plant; 2) the feasibility of developing groundwater supplies for treatment in a new reverse osmosis (RO) treatment plant; and 3) comparing those cost estimates to continued purchase of finished water from BrunsCo PU.  As part of the alternative water supply evaluations, Groundwater Management Associates (GMA) performed a Hydrogeologic Framework Study and Preliminary Wellfield Evaluation to target aquifers for future exploration that have potential to provide sustainable and treatable brackish groundwater supplies for an RO treatment plant.  

The Water Supply Feasibility Study, completed in March 2012, determined that no additional supply allocations from LCFW&SA were available to pursue surface water supplies and treatment; that sustainable and treatable groundwater supplies from the Lower Peedee and the Black Creek aquifers underlie the H2GO service area; and that preliminary cost comparisons indicate brackish groundwater supplies with RO treatment are favorable over continued purchase of wholesale water from BrunsCo PU.  Go or No-Go Analysis:  Given the findings of the Water Supply Feasibility Study, the H2GO Board of Commissioners determined that; a) further evaluations and understanding of reverse osmosis as a potential treatment alternative were needed; b) a financial feasibility study would be required to evaluate the economic feasibility of building a new RO treatment plant versus continuing to purchase finished water from BrunsCo PU; c) further evaluation and understanding of planned capital improvement costs by BrunsCo PU and LCFW&SA (wholesale finished water and wholesale raw water providers) were needed, and; d) potential groundwater supplies in the Lower Peedee and Black Creek aquifers warranted further exploration via test wells to quantify the characteristics of these source aquifers. 

Phase 2 – Evaluate Existing NC RO Plants

April 2012 thru August 2013 – North Carolina has twelve (12) existing municipal RO water plants and a few other RO plants in various stages of planning, design, and/or construction.  Each RO plant has a unique treatment train based on supply water characteristics.  H2GO evaluated each RO plant, comparing treatment capacities; water source and supply characteristics; pre-treatment and post-treatment operations; permeate recovery rates; concentrate characteristics and outfall locations; operation and maintenance costs; and facility location in relationship to their community.  The H2GO Board, Leland Town Council, Belville Commissioners and staff toured RO plants in NC and discussed with their administrators and plant operators the advantages of RO treatment.  Go or No-Go Analysis:  The existing North Carolina RO plants were found to be benign facilities, many located in the heart of the residential and business centers of the communities.  Facilities and operations are simplistic; no disruptive activities or environmental impacts; and the RO plants are viewed as community assets.

Phase 3 – Financial Feasibility Analysis

March, 2013 thru August, 2013 – Based on the Water Supply Feasibility Study, H2GO commissioned Raftelis Financial Consultants to prepare a Feasibility Analysis to evaluate the economic feasibility of building a new RO water treatment plant versus continuing to purchase wholesale water from BrunsCo PU.  The analysis focused on three primary measures:  1) differences in projected annual costs and expected impacts on rates and customers; 2) Net Present Value (NPV) of total costs over a 20-year planning period; and 3) reserves generated from targeted debt coverage.  Go or No-Go Analysis:  The Financial Feasibility Analysis clearly indicated the option to build a new RO treatment plant is better than continuing to purchase wholesale water from BrunsCo PU.  Raftelis’ findings indicated that building an RO plant would result in lower long-term cumulative customer water rate increases; a better Net Present Value; and larger cumulative reserves. 

Phase 4 – Monitor Wholesaler Costs 

2012 thru 2013 - The LCFW&SA (this region’s raw water supplier) commissioned a Regional System Needs Analysis in 2011.  Based on the demand forecast, peak demand was projected to exceed peak raw water capacity in 2013-2014.  As a temporary stop-gap measure the Authority installed a set of booster pumps to extend the anticipated capacity deficit - now projected to be year 2020.  The construction costs for their new 14 mile, 60” raw water transmission line, a booster pump station, and a 20 million gallon raw water storage tank were estimated to be over $64 million.  As a result, raw water wholesale rates were projected to increase nearly 135%.  

BrunsCo PU Capital Improvement Plans (CIP’s) developed in 2011 and 2012 indicated they would spend nearly $48 million for their treatment plant capacity upgrades and water transmission lines for the primary purpose of transferring more than 18 million gallons per day of treated water from the Cape Fear River basin to the Lumber River basin to serve their growing customer base in southwest Brunswick County.  BrunsCo PU also indicated they were evaluating wholesale rates moving from the Producers Price Index (PPI) to a cost-based rate methodology.  This would in effect provide BrunsCo PU the opportunity to build into their wholesale rates their increased debt service costs; their increasing raw water costs; and their increasing operations & maintenance (O&M) costs.  Existing wholesale water contracts, however, push that rate methodology to 2020.  The implementation timeline for BrunsCo PU’s capital improvements is largely based on the availability of additional raw water supplies from LCFW&SA, and the expiration or renegotiation of existing wholesale water contracts.  Go or No-Go Analysis:  LCFW&SA and BrunsCo PU are planning for future water needs.  And, while those planned improvements provide little benefit to our service area, we (you) will pay for these wholesaler improvements through increasing wholesale water rates.  Over the past 15 years, H2GO has paid more than $17 million to BrunsCo PU for wholesale water.  H2GO will pay nearly $1.8 million for wholesale water in 2016.  And, based on historical growth and wholesale rate trending, it is projected that H2GO will pay to BrunsCo PU more than $80 million over the next 20 years for the purchase of wholesale water. 

It should be noted that since the 2012 LCFW&SA Needs Analysis, the estimated cost for their new 14 mile, 60” raw water transmission line increased by $5 million between 2013 and 2015.  The LCFW&SA 2015 capital cost increases were not included in H2GO’s 2013 Financial Feasibility Analysis.  It should also be noted that BrunsCo PU developed an environmental assessment in 2013 that detailed $90 million in upgrades to their water treatment plant and transmission lines.  Likewise, the BrunsCo PU capital cost increases from $48 million to $90 million were not included in H2GO’s 2013 Financial Feasibility Analysis.

Phase 5 – Groundwater Test Wells

May, 2012 thru June, 2013 – Under GMA’s guidance, H2GO installed 4 test wells - two wells at our elevated water tank site, and two wells on Trade Street.  These locations were selected to provide a hydrogeologic cross section from southeast to northwest through H2GO’s service area.  At each test well site, one 4” well was installed 400’ deep into the Lower Peedee aquifer and one 4” well was installed 600’ deep into the Black Creek aquifer.  Pump tests were performed and water samples were analyzed from each well at each site.  Go or No-Go Analysis:  Water quality characteristics and well production rates tested better than anticipated.  This test well data would indicate that fewer well sites and less raw water transmission lines would be required for the project, that RO post-treatment processes could be significantly reduced or eliminated, that permeate recovery rates could increase (improved efficiencies), and that RO plant operational costs could be reduced.  

Phase 6 – CORMIX Study

October 2013 thru February 2014 - Brackish concentrate, or reject water from RO plant operations are proposed to be discharged to the Brunswick River.  CORMIX is an expert rule-based system for the analysis, prediction, and design of discharges into water bodies, i.e., the Brunswick River.  Based on the receiving stream characteristics obtained from field investigations, and concentrate water chemistry, CORMIX predicts mixing and plume characteristics from the proposed outfall.  Go or No-Go Analysis:  The RO system concentrate water has an expected salinity approximately equal to seawater and is the water to be permitted and discharged to the Brunswick River.  Concentrate water characteristics will be reduced to ambient background conditions of the Brunswick River within a 10 meter mixing zone downstream of the submerged outfall, well within applicable State regulations.

Phase 7 – Environmental Assessment

October 2013 thru July 2015 – Based on the North Carolina State Environmental Policy Act (SEPA), a comprehensive Environmental Assessment (EA) for the proposed RO project was developed.  Go or No-Go Analysis:  The findings from the EA determined there will be no significant environmental impacts from the proposed RO project.

Phase 8 – Production Wells

June 2015 thru October 2015 – Two (2) production wells were recently installed at the proposed RO plant site:  one 12” well was installed 400’ deep into the Lower Peedee aquifer and one 12” well was installed 600’ deep into the Black Creek aquifer.  Pump testing performed to-date indicates better performance rates than from the test wells and preliminary sampling indicates better water quality than from the test wells.  Go or No-Go Analysis:  The production rates and water quality from these two full production wells confirm that significant project cost reductions will be realized from fewer well sites, less raw water transmission lines, reduced post-treatment processes, improved permeate recovery rates, and reduced operational expenses.  It should be noted that these estimated project cost savings (estimated financed project reduced from nearly $40M to less than $30M) were not included in H2GO’s 2013 Financial Feasibility Analysis.

Phase 9 – RO Pilot Plant Testing

October 2015 thru January 2016 - RO pilot plant testing will be performed for a 90-day period.  Using water from the newly constructed production wells, the pilot plant will be operated 24/7 to analyze key operating parameters (e.g., membrane flux, permeate recovery and quality, concentrate quality and flow, pre and post treatment chemical dosing, operating pressures, etc.).  Results of the pilot plant testing will be the basis for full scale design criteria and operational cost estimates.  Go or No-Go TBD.

What’s Next?

• Phase 10 – Preliminary Engineering Report (PER) to fully define the proposed RO project and to develop probable project cost estimates.  Go or No-Go TBD.
• Phase 11 – Permitting for an NPDES permit and Public Water Supply approval of the PER.  Go or No-Go TBD.
• Phase 12 – Financial Analysis to update the economic feasibility of building a new RO water treatment plant based on new project information and updated cost estimates developed since 2013.  Go or No-Go TBD. 
• Phase 13 – Engineering Design & Bids received for the project could be complete in early 2017.
• Phase 14 – Construction could commence in 2017 with contract completion in 2018.
• Phase 15 – Start-up operations by the end of 2018.

Summary

Each phase, and each decision to proceed to the next step in this process, has been based on sound engineering, scientific, and financial analyses.  Along the way, it has become increasingly apparent that rising wholesale rates will have a significantly greater impact on H2GO customer rates than if we invest those would-be wholesale water payments in an RO treatment plant.  Favorable studies, reports, field data, and reduced estimates for the RO project have shown the RO treatment alternative to be the most compelling option to insure a resilient, sustainable water supply at the lowest possible rates for the long-term benefit of our customers.  We’re not there yet.  We have more field testing to perform, estimates to update, a revised financial study to evaluate, and more Go or No-Go decisions to be considered.  If you have any questions or concerns about the work we are doing, please contact us or attend any of our Board meetings.

Your H2GO Board of Commissioners, working for you.

• John Crowder
• Bill Browning
• Poe Butler
• Carl Antos
• Ron Jenkins