SALINE WATERSHED ALLIANCE

DRAFT CONCEPT PAPER

For Public Comment

Report of the

Ad Hoc

Steering Committee

Mike Bolin

Ray Gabbard

Dr. Herman Harley

Mike Kemp

Jim McKenzie, facilitator

Roger Moren, ex officio

Steve Morgan, ex officio

April, 2006

SALINE WATERSHED ALLIANCE

DRAFT CONCEPT PAPER

Purpose

This concept paper is drafted by an ad hoc Steering Committee appointed by the Saline Watershed Alliance in order to propose a direction for SWA’s future activities.  It is not intended to define a final solution, but to lay out a range of actions from which SWA and the utilities in Saline County can choose in order to take the next step.  Alternatives mentioned in this paper are for discussion purposes only.  The implementation of any set of recommendations would take action from some or all of the following: the SWA Board, the Central Arkansas Water Board, the boards of various water utilities within Saline County, appropriate local legislative bodies and the Saline County electorate.

SWA Mission

The mission of the Saline Watershed Alliance is (1) to secure long-term (i.e., through 2050) water sources for the citizens of Saline County and (2) to provide that source water to water utilities in the county at a uniform price.  This paper identifies the key elements for achieving those objectives, including options in some cases, and ties those elements together in a draft concept.

Key Elements

1. New Raw Water Source(s)

2. Transmission Line from Source to Treatment

3. Treatment Plant

4. Distribution Lines

5. Rate Equalization

6. Financing

7. Phasing Improvements

Discussion of Key Elements

1. New Water Source(s)

In the near to mid-term, SWA will purchase up to 12 MGD in raw water from CAW in Lake Winona and, in the future, will partner with CAW in building a pipeline from Lake Ouachita to Lake Winona.  There are multiple options on structuring that arrangement:

Option 1.  SWA will buy up to 12 MGD of storage capacity in Lake Winona from CAW.

CAW is open to this option provided there is a reasonable guarantee that SWA will partner with CAW to Lake Ouachita in the future, thereby replacing the storage capacity.  There will be a capital charge for the storage capacity similar to buying storage in a Corps lake, as well as an incremental charge for water actually taken.

Option 2. SWA will contract for up to 12 MGD of raw water in Lake Winona from CAW.

This option minimizes up front capital costs to SWA, allows CAW to retain control of Winona storage, and allows SWA to pay for the water it needs in staged increments.  The cost for water taken will be higher than under Option 1.

Option 3. SWA will contract for up to 12 MGD of raw water in Lake Winona from CAW until the joint pipeline is built from Lake Ouachita and will then purchase 12 MGD of storage capacity in Lake Winona from CAW.

This option combines the first two.  It allows lower initial capital costs for SWA, but would allow SWA to own storage in Winona over the long-term.

2. Transmission Line From Source to Treatment

            For all scenarios, it is assumed that a transmission line will be brought from Lake Winona to the Benton Treatment Plant.

3. Treatment

It is assumed that the Benton Treatment Plant will need to be upgraded and expanded to handle the new water sources.  There are multiple options for structuring the treatment component:

Option 1. The City of Benton will expand the plant and provide water to SWA at a long-term guaranteed rate under contract. 

Under this option, Benton Utilities would retain full ownership of the plant and reservoir and associated debt and be responsible for any expansions necessary to treat new source water.  SWA would assume existing water contracts and contract with Benton for treated water to distribute county-wide.

Option 2. The City of Benton will lease the treatment plant and reservoir to SWA on a long-term lease. 

Under this option, SWA pays for the expansions and upgrades to the plant and will lease the existing plant and reservoir from the City of Benton.  Arrangements will need to be made to retain the current plant operating personnel.

Option 3. The City of Benton will transfer the treatment plant and reservoir to SWA with a reverter clause and SWA will assume all plant and reservoir related debt. 

This is the method used by Little Rock Water to transfer its assets to Central Arkansas Water.  Under this option, the water assets of the county (treatment plant, reservoir, CAW water contracts, and distribution lines) will be consolidated under SWA as well as the outstanding debt on those assets. Arrangements will need to be made to retain the current plant operating personnel.

4. Distribution Lines

SWA will construct additional distribution lines to interconnect the water utilities within Saline County with (A) the treatment plant and (b) with each other.  Master meters will be installed at appropriate locations so that water could be interchanged between utilities, as well as be transmitted from the treatment plant.  SWA would be the clearinghouse through which water is distributed within the county and would be responsible for accounting for water bought, sold or transferred (depending upon options selected) through this system.  Where appropriate, distribution lines constructed by member utilities to the CAW system will be transferred to SWA with a reverter clause along with any outstanding debt associated therewith.

5. Equalization of Rates – A Sharing of Assets

In order to equalize rates for treated water across the county, water from the Benton plant and water from utilities with contracts with CAW will be passed through to SWA to be distributed throughout the county. SWA will blend the costs of water from all sources to generate a uniform water rate for the entire county. The rates county-wide will be equalized over a ten year period. The equalization of rates can be made much easier if all capital debt for transmission, treatment and distribution is paid off with a county-wide sales tax.

6. Financing the Capital Costs

Capital costs for a county-wide system could include as much as (1) infrastructure debt from treatment plant, reservoir and/or distribution lines, (2) storage capacity in Lake Winona (2) transmission line from Winona to Benton Treatment Plant, (3) storage capacity in Lake Ouachita through MAWA (4) transmission line from Lake Ouachita to Lake Winona with CAW.  Of course, depending upon which options are chosen from the above lists, the capital costs could vary considerably. The two options for paying these capital costs are:

Option 1. A county-wide sales tax

A county-wide sales tax, perhaps in the form of a rededication of the 3/8¢ tax now be levied for the jail, would be requested to pay for the capital costs needed to implement the concept. This approach has the advantage of being paid by the entire county for the benefit of the entire county and, by reducing system debt on the front-end, of minimizing rate increases needed to acquire new water and equalize rates.

Option 2. Revenue bonds repaid from rate increases.

This option is the traditional way utilities have financed capital improvements, along with government grants when available. The disadvantage of this option is that it will create tensions within the county between utilities that have an immediate need and those that don’t over the equity of this type of funding.

7. Phasing Improvements

            The improvements discussed in the above elements can be implemented in three phases.

Phase I: Involves the pooling of existing assets (i.e., the treatment plant and reservoir and water contracts and existing distribution lines) and the construction of new distribution lines.  It is estimated these resources are adequate to serve the county’s needs for the next ten years or more.  Rates for wholesale water would be gradually equalized over the decade. 

Phase II: Construction of a pipeline from the treatment plant to Lake Winona to access up to 12 MGD.  It is estimated that these additional resources could serve the county’s needs for an additional twenty years.

Phase III: Construction of a pipeline from Lake Ouachita to Lake Winona in partnership with CAW.  This line would tap the requested MAWA allocation in Ouachita and combined with the other resources mentioned above, could last the county up to fifty years.

Next Steps

0. Test the Concept – Conduct a series of briefings with water utility boards in the county to present the concept and its options and get feedback about what they like about the concept and what concerns they have about it.  The concept and its options can then be refined before final presentation to SWA.

1. Agreement on Concept – SWA should agree that this concept has enough potential that it should be developed further and determine which of the options need further study.  Agreement on concept is not a final commitment to a specific course, only a necessary step before the engineering and financial details can be developed.

2. Preliminary Engineering Study to Determine Infrastructure Costs – SWA will need to commit resources to preliminary engineering on the concept and on specific options in order to reasonably estimate the capital costs needed to implement.  Cost determination is necessary before the financial numbers can be generated and is a prerequisite before asking for a sales tax vote.

3. Financial Plan to Estimate Water Costs to Utilities – A detailed financial plan for the project is necessary to judge the economic feasibility among options as well as to determine the costs and benefits for each utility so that informed decisions can be made on the proposal.

4. Agree Upon a Plan – After reviewing the engineering and financial analyses, SWA and its participating utilities should agree upon a course of action.

5. Funding the Solution– After costs are determined, and a general consensus is developed, the arrangements should be made for funding the solution.  If the sales tax option is chosen, the Saline County Quorum Court should be asked to refer the question of funding these county-wide improvements with a new or rededicated county-wide sales tax to a vote of the people.  A political campaign will need to be organized to support the proposition.

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