By Jacob Flannick
The Town of Kiawah brought an end Feb. 7 to negotiations on purchasing the island’s utility system from Kiawah Development Partners (KDP), a private company running the island-wide water and sewer service.
The Town’s official announcement earlier this month during a Town Council meeting prompted by a letter received by the Town on Jan. 20 from KDP chairman and chief executive officer Charles “Buddy” Darby rejecting the municipality’s pitch to purchase the utility concluded a six-month pursuit to take over the 34-year-old Kiawah Island Utility, Inc.
Town Councilman Charles Lipuma, chairman of Kiawah’s Utility Task Force (UTF), a Town-commissioned group of island officials and residents responsible for garnering assessments of the utility, says KDP’s price tag on the business sharply exceeded the Town’s bid.
“There was a very wide difference between what they wanted and what we offered,” says Lipuma, unwilling to disclose disparities between prices, due to a confidentiality agreement formed between the Town and KDP to avoid swaying future bids. “The price they wanted was significantly higher than what we thought was an appropriate market value.”
While seeking approval last summer for a utility rate increase from the South Carolina Public Service Commission, KDP sought to relinquish ownership in June to the Town, fulfilling mandates in an updated 2005 Development Agreement between the two parties that grants the Town “first rights” in taking over the utility, according to Lipuma.
Municipal ownership of the utility would lower rates for island residents, due to minimal borrowing rates and exemption from federal, state and local taxes, among other reduced fees, he says.
“All of these things would serve to lower our costs, and these cost savings would be passed on to the rate payers,” Lipuma says, noting municipal control of the utility would snap a 37-year streak of private ownership. “We felt that since they were going to sell it, it was in the best interest of the Town and the rate payers that we make a purchase.”
The UTF consulted in early Nov. with law firm Haynsworth Sinkler Boyd and Jacobs Engineering Group, Inc., to line up contractual obligations and assess the utility’s financial value, says Lipuma. “They came up with what we thought was a fair market value,” he says, noting the Town deemed the estimate similar to an amount a third party would likely offer.
KDP, on the other hand, received a greater estimate after hiring Boston, Ma.-based consultant John Guastella, president of Guastella and Associates, LLC, to appraise the utility system, according to Lipuma.
“Our response was, ‘why should we pay you more than it’s worth in the open market?’” he recalls. “We said, ‘thank you, but no thank you.’”
Unable to strike a deal, the two parties show no interest in reaching a last-minute price settlement, says Mike Touhill, director of public relations for KDP.
“Simply, the two sides were too far apart,” says Touhill, relaying a statement over the phone from Townsend Clarkson, KIU president and KDP chief operating officer. “The reason why we didn’t accept their offer was that we felt the price offered was too far from where we value the utility.
“And That’s just how it is,” added Touhill. “Whether the Town decides to take it up again in a future session is up to them.”
According to a Public Service Commission report, the utility commission approved early this month a majority of KDP’s rate increase proposals, including a roughly 18 percent increase in water bills and a one percent increase in sewer.
Touhill says the Town remains the “most viable and suitable option” to take up ownership.
“It has always been our hope and our goal that the town would purchase [the utility] when we got close to building out the island,” says Touhill, noting development will continue for years on Kiawah until reaching full capacity.
Lipuma says the utility’s proprietary fate rests in KDP’s hands, however.
“They rejected our offer and we said, ‘fine, that’s the end of it,’” recalls Lipuma. “If they wish to make a counteroffer, we would entertain it and we would go from there.”
For more information from the town council, visit http://www.kiawahisland.org/Government/TownCouncil_Minutes.aspx