Politics

Q&A: What's ahead in the water war?

By Bill Moss, Published: March 26, 2017

The stage is set for an epic battle in the state Legislature between the city of Hendersonville and the Henderson County Board of Commissioners.

Commissioners voted 3-1 last week to endorse a proposed bill that would put the Hendersonville city water system under the control of the North Carolina Utilities Commission. The vote came after commissioners devoted an hour and a half to a proposal by Commissioner Bill Lapsley to force the city to agree to a countywide authority and, barring that, subject the water system to control of the regulatory agency that controls rates for electric utilities, water systems and railroads across the state.
Tommy Thompson voted no, saying he wanted more time to study the question. Voting yes were Lapsley, Grady Hawkins and Chairman Michael Edney.
Messer said he had to leave for an eye doctor appointment. He said he would have voted with Thompson against the motion in favor of studying the issue more closely.
“I did get a call from Sen. Edwards yesterday,” he said Tuesday. “He asked me the same question. I just think we need to set down with the city. We got the Hendersonville High School issue pending anyway. If there’s a difference, we need to set down and try to get through this because we’ve always been good partners with the city. From what I understand (from Edwards) we’re not pushed for time on him and Chuck McGrady presenting a bill.
“But I would have voted with Tommy,” he said. “There’s a lot of valuable information we received. I just thought personally we should have received it a day or two ahead of time, to make notes and ask questions, other than make a resolution on the spur of the moment. That’s what I think it was. If we can resolve it without doing this, that’s what I would like to see happen.”
Based on Lapsley’s presentation on the city water system, commissioners’ comments and interviews by the Hendersonville Lightning with city and county officials, here is what we know about the issues, how we got here and where we could be headed.

How is the Hendersonville city water different from other municipal systems?

The main difference is in the makeup of the customer base. Hendersonville’s system has 27,400 accounts serving 60,000 people, a little more than half the total population. Seventy-five percent of them live outside the city. Of 296 municipal water systems, just 10 have more than 50 percent of customers outside their city limits. Hendersonville has the second highest percentage in the state. (The town of Linden, near Fayetteville, has 89 percent of its base outside the town limits but only 679 total customers.) Hendersonville’s rate for outside users is 50 percent higher than the inside city rate.

Is this a problem?

Here you get to the heart of the dispute. Lapsley and the commissioners and state Rep. Chuck McGrady say yes.
“This imbalance of the customer base has created a situation where the governing body is not answerable to the vast majority of the system’s customers,” Lapsley says. “There is no means for the customers located outside of the corporate limits to hold the governing body accountable for its actions.”
“About 70 percent of the people receiving water from the City are not city residents,” McGrady says. “Therefore, they don’t really have any representation if they have problems with the water system. I’m aware of the issue, and aware of both the city’s and county’s viewpoints.” McGrady is considering a bill that would place all municipal systems with more than 40 percent of their customer base outside city boundaries under the Utilities Commission authority.

What would Utilities Commission regulation do?

Under the law the state body provides oversight and accountability in rates and fees, extension policies, customer service standards. Specifically, Lapsley wants the change in state law to result in “a thorough review” of the city’s “rates and fees to make them uniform for all customers” and would also “make available to all customers a means for holding the system’s owner/governing board accountable for their actions.”
City officials say the state oversight is unnecessary and potentially would cripple the city’s ability to be agile in responding to requests for emergency lines, as it did when it ran water lines to a Dana neighborhood with contaminated wells, and for industry, as it did when it extended water service for Tri-Hishtil, a plant grafting company, and Bold Rock Hard Cider, in Mills River.
City Manager John Connet posed a scenario where a factory pledging good jobs was looking at Henderson County and a competitor, Catawba County.
“The question is, you’ve got an industry, and they ask you, ‘You’ve got the capacity, can you expand the plant?’ In Hendersonville’s case, we’d say, yes, we can expand the plant but it’ll have to be approved by the utilities commission and if you’re in Catawba County they’ll say, ‘Oh, we can approve that whenever we get permission of the city council.’ So the question is, what risk is it going to be to lose that industry? That would be my concern. Can we move as quickly as we need to from an economic development standpoint.”
Even with a single user, the city is responsive to need, inside or out.
“That happens every day,” he said. “We answer a thousand calls a week. We never ask, Are you inside the city or outside the city? We treat every customer the same way regardless of where they are. We had a customer (in Flat Rock) whose well was failing this week on Old Distillery Road off of Little River Road. She called. We said, ‘Come on in, we’ll talk about it,’ and we’re finding a way to run a short water line extension as soon as possible. We’re going to find a way to get her water. That’s just one example this week. We deal with people every day and never does it ever come up whether you’re in the city or out.”

Why does the city charge higher rates outside the city?

Several reasons, city officials say. Over more than a hundred years, Hendersonville taxpayers have to some extent invested in the water system beyond what water revenue has generated. While legislators say cities use water revenue to subsidize general fund operations, Hendersonville officials say the opposite is true. While the city’s accountants do apportion an amount of employees’ work to the utilities and general operations, the general fund actually helps pay for the utility side, according to Connet.
“Taxpayers are paying a portion of that cost that’s not on the rate,” he said. “My salary is split 50-50. … We’ve estimated that’s about $2 million that is not on the rate side of the house that the citizens of Hendersonville are paying in their tax bill” to support the utilities operation.
Another reason is that it costs more per customer to pump water, maintain lines and chase leaks through more sparsely populated areas.
“The financial model of a utility system is the higher density you have, the more economical it is because you get more customers per linear foot of line,” Connet says. “Obviously, if you have long distances of line where you don’t have customers, or you have to pump it farther, then yes, there’s a greater cost.”

How much would county ratepayers save and how much more would city customers pay if the Utilities Commission ordered uniform rates?

That can be a little tricky because rates are based on consumption. The city has calculated that the county users would see a 20 percent cut and city dwellers would see a 25 percent increase. The rate now for a 5,000-gallon/month household is $19.79 inside and $30.17 outside — 52.5 percent more.

Does the city of Hendersonville and neighboring towns coordinate plans on water and sewer extensions?

Again, another eye-of-the-beholder scenario.
“They are afraid to bring up water operations issues for fear of hurting their relationship with the city of Hendersonville and any probable repercussions,” Lapsley said.
Connet says he’s never heard that the towns of Laurel Park, Fletcher, Flat Rock and Mills River are afraid to talk to the city.
Since he came on board in May 2013, Connet has visited every town council, updated members on upcoming improvements and extensions “and point blank asked them, ‘Do you have concerns, problems or issues that you want us to take back to address?’ I know we went to the county commission at least twice.”
He also points to a stakeholders’ report the city conducted that included interviews with elected officials from Henderson County and all its towns.
“There was no city staff and no city council in any of the interviews,” he said. Fountainworks consultant “Warren Miller went and interviewed them on their own.”
Laurel Park Town Council members said last week their town has a positive partnership with Hendersonville since 1898.
“I think everybody agrees we have an excellent relationship with Hendersonville,” Councilman Paul Hansen said. “I don’t see a reason to change it at this time. I understand the politics of it but from a Hendersonville-Laurel Park perspective I’m not in favor of it. I don’t think it’s a good idea having people 400 miles away determining our future.”
Mayor Carey O’Cain added: “The city of Hendersonville and the town of Laurel Park have had a peaceful relationship for a long long time with regards to the water department.”

Does Hendersonville coordinate waterline extensions with Henderson County?

Again, in dispute. Lapsley says the city should have consulted with the county before it bought a private water plant in Etowah. Connet said he did.
“I asked the county manager on two occasions, ‘Do I need to get permission for us to buy Etowah?’ ‘Nope. We’re fine. We don’t want it, you can have it.’ And Bill is beating us up over that. He’s just using that against it.”
Commissioner Grady Hawkins says that a long-range master plan for water should include county input, or even control, because water drives land use. City officials say they’ve brought in all stakeholders in planning, including county officials and the Partnership for Economic Development.
“We’ve included county representatives and county staff on our planning committees,” Mayor Barbara Volk said. “We met with members of a stakeholders group. I’m not sure how much more they’re willing to give other than they want to be part of an authority. We were asked (in the Jan. 23 meeting) to look at the difference between inside and outside rates and we were told they want an answer right now and we said we would look at it as part of our budget process.” That’s part of the broader rate study, she said. “That’s why we couldn’t give them an answer that day.”

Is a compromise possible?

It could be, if the two sides were to cool off. Councilman Jeff Miller admits to being furious — and making no effort to hide it — when Lapsley raised the threat of state control of Hendersonville water during a meeting on Jan. 23. The meeting included Connet, Miller, Mayor Barbara Volk, County Manager Steve Wyatt, Lapsley and Board of Commissioners Chair Michael Edney. Lapsley “starts immediately reading off a list of things that he thought we in the city of Hendersonville weren’t doing properly,” Miller said. “He said, ‘If you won’t form a water authority with the county, we have already talked to Chuck Edwards and Chuck McGrady and we’ll request that the city be put under the oversight of the public Utilities Commission.’ Basically, they were trying to use a very heavy handed method.”
Miller and Volk refused to negotiate with the sword of state control over their heads.
“My recollection is that at that meeting we said we would not do anything under the threat of legislative action,” Connet said. “We were taken aback.”
Connet says the council has already committed to looking closely at the rate differential.
“If that’s the big issue, as part of the rate study, we are going to look at what it would take to go to uniform rates and how we could do it over a reasonable period of time,” he said. “When we raised the inside rates last year more than we did the outside rates, we got some pushback from the minority community, particularly low-income, about how this is regressive. Instead of doing it in one fell swoop, we would ask can we figure out a plan to do it over a period of time, being conscious of our lower income residents.
“That is absolutely a discussion the city council is willing to have and will have,” he added. “I think it’s a conversation individual members are starting to have among themselves. By no means has there been a door closed within a reasonable period of time of getting closer to uniform rates.”
Lapsley also talks as if the door is still open for talks, though he leans toward a countywide water authority.
“If this goes through does that forever say permanently the city and the county can’t get together? No,” he said. “That option, does that come off the table because of this? No. That’ll always be there. The question is whether the city of Hendersonville wants to entertain it.”

Will this fight result in a lawsuit?

That’s very possible. The city of Asheville sued when the Legislature passed a bill in 2015 that put its water system under a regional water authority. The city won in a state Supreme Court ruling, which could have some relevance to the city case. Asheville would be dragged into the Henderson County-Hendersonville fight if McGrady files a bill that applies to city water systems with more than 40 percent of their base outside the city limits. (Asheville has always been McGrady’s primary target anyway.) The 40 percent cutoff would double the number of affected cities, from 11 to 22.
On Friday afternoon, the phone rang in Connet’s office. He glanced at the caller ID.
“The town of Clyde is calling me,” he said. “They’re on this list. I talked to the town of Valdese yesterday.”
Other cities could rise up to oppose what they regard as a state encroachment on their sovereignty. “We have made the League of Municipalities aware,” Connet said.