Town Manager’s Latest on Sale of Water and Wastewater Utilities

The following is the latest message from Town Manager John Hozey regarding the potential sale of the Town’s water and wastewater plants. In this communication, Mr. Hozey provides more detail on the potential sale:

Back in January and February of this year, the Town reached out to all of you to offer information about a potential sale of our utilities, and to solicit everyone’s input. We covered a lot of history and context back then, over a series of five detailed messages, and two Town Hall meetings. Please click here to go to the PPEA Unsolicited Proposals – Water/Sewer Utilities Page.

When we last reached out, we noted the next step would be to use your input to inform the development of some draft sales documents that could then be brought back for public inspection. This didn’t commit us to anything, it just enabled us to develop some needed specifics. Due to other competing priorities, this process took longer than expected, but we are now ready to reengage with the community and again ask for your thoughts.

This is all very complex stuff; and so like before, we’ll try to break it down into more digestible portions. Let’s begin with a process update. We have finished negotiating a Comprehensive Agreement with Virginia American Water (VAW) that is now ready for your review. This agreement includes provisions of an Asset Purchase Agreement and a Franchise Agreement. Please note that these are formal, legal documents, that not everyone will find an easy read.

So a layperson’s explanation of some key terms is included below. This information is being offered in advance of two Town Hall meetings (scheduled for October 5th and October 8 th), which will then be followed by a formal public hearing. After the public hearing the Town Council will decide whether to approve these agreements. If approved locally, that would start a lengthy process of filing with the State Corporation Commission (SCC) to get their approval.

More information can be found on the Town’s PPEA page.

Only after an SCC approval, would a sale be finalized and close. As a very brief recap of the discussion last winter, the reason for considering this potential sale is threefold.

First, to ensure proper operation and maintenance of the systems going forward.

Second, to improve water quality.

And third, to keep local rates lower than would otherwise be the case if the Town were to keep the systems. Ancillary benefits include, paying off all Town debt and obtaining additional resources to help meet other Town capital project priorities.

A significant amount of due diligence has gone into evaluating this potential sale, to include review by consultants knowledgeable in this field, and checking references from other communities served by VAW. To date we have found no red flags or issues with the proposal. However, we still need to hear from you and provide answers to your questions.

Okay, now let’s get into the meat of the proposed agreements:

• The purchase price will be the fair market value (FMV) as determined by an average of three independent appraisals, up to a maximum of $15 million; the town has an option to withdrawal if the FMV comes in under $14 million

• Rates will be frozen at current levels until VAW’s next rate case to the SCC

• At VAW’s next rate case to the SCC, they will request Cape Charles be brought into their fully consolidated rate structure, which is anticipated to be less than our current rates

• VAW will invest $10 million in the Cape Charles utilities over the next eight years

• Efforts to improve water quality will begin within 12 months after closing, with the Town Council being able to approve the initial project priority

• All existing Town utility employees will be offered local employment with VAW, with pay and benefits at or above what is currently provided by the Town

• A process has been defined to allow for future regional public utilities (like HRSD) to connect to the system

• The Town will receive an ongoing franchise fee of $50,000 per year, with CPI adjustments • Monies previously collected in the facilities reserve account will remain with the Town

• VAW will meet on a routine basis with the town manager and town

A public hearing and special meeting have been tentatively scheduled for November 10th for the Town Council to take formal action on this matter. Comments are welcome and can be submitted in writing to the Town Clerk prior to the public hearing, or at the public hearing.