Consolidation of Water and Wastewater Systems: Options and ...

Consolidation of Water and Wastewater Systems: Options and Considerations

Table of Contents

Acknowledgements....................................................................................................4 Introduction.................................................................................................................5 Section One: Water and Wastewater Service Provision Models in

North Carolina and their Role in Consolidation................................................7 Single municipality operating as a regional utility.........................................7 Single county government...............................................................................8 Joint Management Agency................................................................................9 Water and Sewer Authority..............................................................................9 Metropolitan Water District and Metropolitan Sewerage District.............10 Sanitary District...............................................................................................11 Private Nonprofit Associations/Water Cooperatives..................................11 Investor-Owned Utilities.................................................................................12

Section Two: Consolidation Considerations..........................................................13 How will the feasibility of consolidation be evaluated?..............................13 How will the physical assets of the system be valued?..............................16 How will outstanding obligations and responsibilities be addressed?.....17 What impact will consolidation have on customer rates?..........................18 How will the consolidated utility be governed?...........................................19 How will disputes be resolved?......................................................................20

Conclusion.................................................................................................................20

The Environmental Finance Center at UNC-Chapel Hill

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Acknowledgements

Written by Erin Riggs and Jeff Hughes.

This report is a product of the Environmental Finance Center at the University of North Carolina at Chapel Hill (EFC). Findings, interpretations, and conclusions included in this report are those of the authors and do not necessarily reflect the views of EFC funders, the University of North Carolina, the School of Government, or those who provided review.

Funding for the preparation of this guide was provided by the North Carolina Division of Water Infrastucture.

About the EFC

The EFC is part of a network of centers that works on environmental issues, including water resources, solid waste management, energy, and land conservation. The EFC partners with organizations across the United States to assist communities, provide training and policy analysis services, and disseminate tools and research on a variety of environmental finance and policy topics. The EFC is dedicated to enhancing the ability of governments to provide environmental programs and services in fair, effective, and financially sustainable ways.

Learn more at efc.sog.unc.edu.

? 2019 Environmental Finance Center at The University of North Carolina, Chapel Hill

School of Government Knapp-Sanders Building, CB# 3330 University of North Carolina at Chapel Hill

Chapel Hill, NC 27599-3330 efc.sog.unc.edu

All rights reserved.

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Consolidation of Water and Wastewater Systems: Options and Considerations

Introduction

Utilities across the country are seeking ways to best serve their customers by providing safe drinking water and wastewater treatment in the most effective and efficient manner. However, some utilities struggle to remain viable as they face degrading infrastructure, shrinking customer bases, tragic devastation from significant weather events, and decreasing revenues due to decreased sales. For many utilities, the focus (and perhaps motivating factor) to investigate regional solutions is to address these pressing needs. Sometimes, the best solution to address challenges like these is through consolidation. This guide seeks to provide insight on how to develop fair, effective, and efficient consolidated services by focusing on organizational approaches currently allowed under North Carolina state law, and to flag and highlight considerations that should be addressed during evaluation and implementation. In a 2019 briefing paper, Utility Strengthening through Consolidation, the US Water Alliance defines the three general approaches to water sector consolidation as direct acquisition, joint merger, and balanced merger, which are defined below.

Direct Acquisition Direct Acquisition refers to one higher-capacity utility absorbing another in its entirety. The utility being acquired ceases to exist altogether and the acquiring utility takes on the assets, operations, and customers of the acquired utility. In this scenario, Utility A acquires the assets and customers of Utility B. Utility A subsequently owns and operates Utility B's facilities, and the customers of Utility B now pay Utility A directly. At the end of the consolidation, there is only Utility A.

Joint Merger A joint merger involves two or more utilities often, but not necessarily, of similar capacity consolidating to become a new entity that is jointly owned by the participating utilities. In this scenario, Utility A and Utility B both contribute their individual system revenues and assets to create a new Utility C. Each utility modifies its previous independent governing structure and participates in forming a new joint governance structure in the new utility. At the end of the consolidation, there is only Utility C.

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Consolidation of Water and Wastewater Systems: Options and Considerations

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