Wholesale water numbers looking promising
Although the numbers will be further refined, the bottom line from a feasibility study into the use Sunflower water plant as a source of a wholesale water cooperative is already apparent.
“We could have a renovated facility out there without a rate increase for our water customers,” city engineer Mike Brungardt told the De Soto City Council last week.
It was always assumed finding other partners to help with the cost of upgrading and renovating the Sunflower water plant would make it more affordable for the city and its water customers. It was the purpose to the feasibility study to put numbers behind that assumption while developing costs for possible partners — the city of Gardner and Johnson County water districts No. 6 and 7.
The decision to have one last look at the numbers came at a meeting last week of representatives of the four jurisdictions considering the cooperative.
The numbers released last week look promising, estimating water can be produced at the plant somewhere from $2.19 to $3 per 1,000 gallons. In a meeting of the possible partners last week it was agree Larkin Group Inc, the study’s author, would further refine the cost projects for a final report to be released next week.
Brungardt said Larkin was asked to look anticipation of higher costs for a pump station and waterline upgrades plus a more realistic approach to depreciation payments.
Brungradt explained formula used to develop rates assumed depreciation payments in the bond that would provide enough money to replace the water plant when the bond was retired.
“Nobody does that,” he said. “In effect, you’re paying for it twice.”
Larkin’s review wouldn’t completely zero out depreciation payments, because the potential cooperative partners agree a major equipment replacement fund would be needed.
The early formula also didn’t include the $500,000 earmark Congress approved last month for renovations to the water plant.
The range in last week’s numbers reflected different financing options for $15.8 million of improvements and the assumption costs would be greater in the wholesale cooperative’s first year of operation as compared to the third year because the wholesale district would sell more water in the third year.
For example, the lowest cost estimate of $2.19 per 1,000 gallon in the third year of operation used a 40-year bond retirement schedule. The highest estimate of $3 per 1,000 gallon was the first year of operation with a 20-year bond retirement schedule.
Brungardt said he expected the final cost per 1,000 gallon cost to be about $2.50.
The added sales would be to Gardner, which would increase its use from 1 million gallons a day in the first year (2013) to 2 million in 2015, Brungradt.
What makes Gardner’s participation so appealing to the district is that it wouldn’t depend on the Sunflower plant for its peak demand, which would require the plant be engineered for a far greater production capacity, Brungardt said. Instead, Gardner would satisfy its peak demand from Hillsdale Lake source.
Because of the importance of Gardner’s water needs, the water district would construct and maintain a water line from Sunflower to Gardner, Brungardt said.
That is not only an attractive number for the city of De Soto but for such potential customers as Douglas County Rural Water District No. 4 and Baldwin City.
“That’s extremely competitive,” said Scott Schultz, administrator of Douglas County Rural Water District No. 4. “That would be something we would have to take a serious look at compared to all our existing options and potential future options.”
The eastern Douglas County water district currently purchases water from the city of Lawrence at $3.83 per 1,000 gallons.
Adding to the Sunflower option’s attractiveness is that it might require no capital cost for his district, Schultz said. Douglas 4 currently purchases about a third of its water needs from Johnson County 6 and would be directly connected to the Sunflower plant should the Johnson County water district become a member of the cooperative. If Johnson County 6 chose not to join, it would only require three to four mile waterline, Schultz said.
De Soto water customers would certainly be looking at a rate increase should the city be forced to go it alone at Sunflower, Brungardt said.
An average of De Soto production cost at the plant for 2008 and 2009 and its projected cost in the 2010 budget is $2.53 per 1,000 gallons. While that compares with those developed for the cooperative, it doesn’t include any debt service, a situation that will soon change with the city moving forward with three improvements estimated to cost the city from $1 million to $1.5 million (minus the $500,000 earmark).
Last Thursday, the city council approved borrowing up to $2 million from the city’s electrical utility to pay for those initial improvements, which include a new water line from the Sunflower treatment plant to the city’s distribution line, new electrical lines to the water plant and a backup generator at the plant.
The city will repay the electrical fund once temporary notes are in place for the projects, which will eventually be part of a bond issue.
The city council also approved an agreement with Sunflower Redevelopment L.L.C. that gives the city easements for the new electrical and water lines, a 30-year lease on the four water towers and settles a dispute on water rights (see related story).
The council also approved an $18,000 contract with Jon Krudwig to study the structural integrity of the concrete structures at the plant. Krudwig’s De Soto structural engineering firm specialized in the rehabilitation of concrete structures on the East and West coasts from deterioration caused by salt water.
The contract wasn’t bid because of Krudwig’s expertise in the area and his availability, Brungardt said.
Should the wholesale water district be formed, its partners would buy in by compensating De Soto for recent and imminent improvements and expenses the city has made at the water treatment plant.
Brungardt told the council last Thursday it would be reasonable to ask those potential for commitments in the form of money soon.