In August of 1999 Duke Power decided it wanted to divest itself of its ageing water utility operation in Anderson County estimated to be worth about $42 million.

This began a costly bidding war between the Anderson County Water Association and the City of Anderson. In January of 2000 Duke received a $76 million bid from the County Association and one for $46 million from the City. In February of 2000 Duke accepted the Water Association’s high bid .

Then strange things began to happen.

The City faulted the County Association’s bidding process and demanded new negotiations on a joint purchase. The Water Association wanted $30 million from the City for the retail system that supplied water to about 12,000 City customers and about 5,000 others. The City balked at that price and broke off talks in December, only to resume them in April of 2001. The City then made the County Association an offer that for some reason it couldn’t refuse. A joint purchase from Duke for $68 million was agreed upon, with the City paying $15.5 or $16 million ( newspaper accounts and official’s statements differed on the exact figure ). Then Duke, which is the City’s biggest taxpayer, mystifyingly agreed to another reduction of the negotiated price and signed off at $63.5 million, announcing on September 24, 2001 it was a done deal.

The County Association’s original offer of $76 million covered service to about 150,000 area customers ( including City residents ) or about $500 per customer. The City’s purchase price of $16 million covered service to about 17,000 customers ( including City residents ) or about $950 per customer.

Available details of these negotiations fail to explain many obvious questions.

1. Why couldn’t or didn’t Duke insist on closing the deal at $76 million rather than accepting a delay of a year and a half and then agreeing to a price than was $12.5 million less?
2. Why did the County Association drop its original demand that the retail system was worth $30 million and agree to discount that price by $14 or 14.5 million?
3. Why do newspaper reports and official statements vary by half a million as to the exact cost paid for the retail system by the City?
4. If the operation was only worth $42 million , why did the County Association and the City feel it was worth a premium of $21.5 million more?
5. Why did the City feel it made a better deal for City residents when the per customer cost was almost double that of the original Water Association bid?
6. Having bid $46 million for the entire operation in January of 2000, what convinced the City that the same operation had increased in value by $17.5 million just a year and a half later?

The actual cost of the City’s acquisition is considerably greater than $16 million . As any accountant will attest, the purchase price of a business is just the start of additional and escalating costs. In addition to the initial $16 million, the City and its Residents have incurred these additional obligations:

1. The prolonged negotiations which ran for 2 ½ years were expensive. The costs included attorney fees, consultant fees, lobbying services, conference calls and meals . These amounted to about $1 million.
2. The City then needed money to set up shop ( billing department space, equipment and personnel ); to pay Brokers for handling the Bond sale required to fund the purchase, to cover the negotiation costs mentioned in 1. above and to repay the Sewer Fund from which it borrowed $1 million. To acquire funds for these expenses the City borrowed $4.5 million in 2002, with Council authorization to borrow $2 million more, as needed, for any additional startup costs.
3. Next, just as when buying a home or automobile, if you don’t have sufficient current funds you must borrow to finance. The City had to borrow 100% of the purchase price plus the borrowings mentioned in 2. Above. In 2002 they issued $20,415,000 30-year water revenue bonds at 3.5% to 5.125% interest. The City’s financial statements don’t indicate the gross amount of interest to be paid over the life of the Bonds. However, based on figures indicated in a newspaper account, the interest appeared to be about equal to the amount of the issue, or $20.5 million in gross interest expense, making the total cost of initial financing almost $41 million.
4. After the purchase the City discovered that the utility they bought held many unpleasant surprises. For example, City crews discovered 325 unreported broken meters and 5 water storage tanks that had not been painted for over 20 years. In 2005 the Council authorized borrowing $8,778,555 to finance the repair , upkeep and improvement of the utility’s fixed assets. An undisclosed amount of interest would add to the cost of this borrowing. A local resident asked, “Why didn’t the City know about the disrepair before signing the deal and reduce the price accordingly?”
5. Finally, as part of the agreement with the County Association, the City is required to pay a minimum sum of $1.89 million annually to the County Water System regardless of how much water is used by the City. Over the life of the water revenue bond issue this adds up to about $57 million. Without experience operating a water utility and without formal City resident r approval, the City incurred fixed liabilities of more than $100 million over the life of the water revenue bonds. This amount does not include annual operating expenses.
   As confirmed by the Mayor, all of this debt is the sole responsibility of City residents.

Without experience operating a water utility and without formal City resident's approval, the City incurred fixed liabilities of more than $100 million over the life of the water revenue bonds. This amount does not include annual operating expenses.
As confirmed by the Mayor, all of this debt is the sole responsibility of City residents.

For over 100 years Duke Power had supplied water to the City residents of Anderson and other Anderson County customers. Duke, in the business to make a profit, was subject to the regulations of the South Carolina Public Service Commission (PSC). As in all States, utilities are regulated to prevent price and/or supply abuses. A utility is a monopoly facing no competition for its product. Therefore, without governmental regulation it could deny its product to some or give price preferential to the favored. That’s where PSC comes in. Perhaps the most important PSC regulation is the one that requires a utility to charge the same rate to every customer in a User Classification. Duke complied and at the time of the sale charged all Residential Users the same $12.14 average rate.

However, the South Carolina Legislature decided that Municipalities did not require any oversight if they owned and operated a monopolistic utility. It voted to exempt Municipalities from compliance with PSC regulations. This opened a Pandora’s Box that spewed out unfair and discriminatory practices by Municipalities, such as Anderson, aimed at South Carolina citizens who had been protected for decades by PSC regulations.

At the time negotiations were finalized, the Anderson Independent-Mail (AIM) reported ;“Mayor Shirley said city residents would see an increase of 35-36% over five years, raising the average 6,000-gallon water user’s $12.14 bill to $16.50 per month.”

One month later City Councilman Stewart said; “It was imperative that we do all that we could to keep the water under our control so that we can keep rate increases down . . . even the smallest rate increase can be a big problem.”

Five months after that, AIM reported the City Manager said its water customers would see increases over five years until customers reach a 39% increase. That computes to a price of $16.87.

Yet today, not 5 years later, but just 3 years after the purchase, the average rate for City residents is $19.44 or an increase of 60 %, an increase much greater than the 35-36% the Mayor promised. Also , for a water customer living inches beyond the City line , the average rate is $38.88 or an increase of 120%, an increase much greater than the 39 % that the City Manager promised. Confused about two Residential User classifications, in direct contradiction to PSC requirements for profitable investor-owned utilities? Duke had supplied water to City and rural customers at the same rate, as required by law. Taking advantage of the loophole in the PSC regulations ( see above ), the City decided to segregate rural residential users from City residential users. At a June 2004 Council meeting the City of Anderson increased water rates for City residents while doubling that rate for rural residents. AIM reported that one citizen at the June 2004 Council meeting said he had been assured by City leaders that they would treat all customers the same and that he felt betrayed. He continued to say the nickname for the City should be changed to “The City With No Honor.” The AIM City Editor wrote, “ Those were strong words. And they’re hard to argue with. “ , and “ If I were a county resident/city water customer, I’d be hopping mad, too.”

The doubled rate affected over 5,000 unfortunate rural customers who have absolutely no viable means of protest. They are not protected by the PSC. They have no vote for Mayor nor City Councilmen. They can’t change water companies nor may they dig their own wells.

The City leaders claimed that the rural rate was comparable to rates paid by customers of other county water utilities, but in a subsequent article AIM reported that their analysis disclosed that the City of Anderson charged outside customers more than any of the rural utilities. In a March 2005 Editorial, AIM stated that geographical location should not be a criteria for water rates. The Editorial continued that rather than be used to fund water system projects, the City Manager said the extra money taken from the pockets of rural customers would be used for to pay for amenities benefiting City residents , making up shortfalls in the City’s budget; “. . . without requiring a property tax increase.”

At a June 27th, 2005 Meeting, The Council approved a property tax increase.

The annexation laws of South Carolina are the most restrictive in the nation. The only method still available requires at least 75 % of property owners controlling at least 75 % of assessed valuation of real property in an area to agree to annexation and the area must be contiguous to the City desiring to annex.

The reason the State legislature, complying with the wishes of the majority of South Carolina citizens, voted stringent rules for annexation are varied. Affected landowners, businesses and residents feared their taxes and fees would increase and the City’s regulatory controls would be more stringent and oppressive than the County’s. They also may have worried that the socio-economic levels, the quality of education and the demographics would differ greatly from the suburban lifestyle they currently enjoyed. Many had purposely moved from the City to escape an urban lifestyle . Many rural residents sacrificed much in order to provide their families with the open spaces and suburban livability that country life offers. Finally, there is a basic American belief that citizens have the right to choose the government that will govern them. They hold this right to be among the most important democratic principles of this free country.

It appears that the ‘intent’ of the legislature was to impede annexation and maintain a State image of country living . But just as Anderson found a loophole in the PSC regulations that permitted it to discriminate against suburbia with a dual rate, they found a loophole in the 75 % rule that allowed them to discriminate against new homeowners in their utility service area.

That loophole is revealed in the Anderson Water Service Agreement that any homeowner buying a home in the area serviced by the City’s utility must sign .

The Agreement contains two binding paragraphs in that regard: First it states; “Whereas, the City is under no obligation to furnish sewer and/or water services to property located outside monicipal limits…”
Consider that unfortunate homebuyer with the City’s water line inches from his property line who learns that the City can refuse to open the tap unless he complied totally with the demands of the City in regard to annexation. He may not have been forewarned of this before taking title. He also discovers there is no competing water company for him to turn to.
Which brings us to the second constricting paragraph; “Whereas, Owner specifically agrees when the Subject Property can be annexed into the City , Owner hereby consents to such annexation,…”
Forget about a citizen’s right to a free and uncoerced decision. The City is saying that unless the homeowner votes the way the City demands there will be no water running from the faucets in his new home.

This Agreement appears to meet the meaning of an Adhesion Contract. That is a contract imbalanced in favor of one party over another and offering no choice but to to accept the burdensome and restrictive terms. In the case of the Water Contract the alternative of selling one’s home immediately after purchase or living without water is inconceivable, so the new homeowner must capitulate to the City’s unjust exaction. The doctrine of an Adhesion Contract or other legal remedies against the City’s tactics should be used but the realities of the costs of a trial and a capable lawyer and the big guy-little guy inequity work against such action.

In June 2004 the Mayor wrote “We are NOT using the water rates as extortion for annexation.” In August 2004 the City Manager said “A lot of people think this is blackmail to get people to annex, but it really isn’t…” In June 2005 the Mayor wrote “We are not using the water system to force annexation.”

As of November 20, 2008 the City still demands a new homeowner trade his conscience for a glass of water.