The city is also considering sending its sewer utility to the county Public Works Department.

Kitsap Public Utility District has been asked by Bainbridge Island to begin an extensive “due diligence” study for the purpose of taking over the city’s Winslow water system.

After receiving direction by a consensus of the City Council, interim City Manager Lee Walton requested the action through an email sent to KPUD General Manager David Siburg, who said Thursday that his Poulsbo-based utility would begin the study as soon as possible.

“His email request laid it out, and we will embark on a full due diligence effort over the next three months,” Siburg said. “We will evaluate the entire system with a review of its health and operations, and the culture we would be getting into. It might take less than 90 days, but it will be comprehensive.”

Walton also asked the Kitsap County Public Works Department this week if it would consider looking into the possibility of the city transferring operations of its sewer system to the county.

“We have been asked to look at it,” said Randy Casteel, director of the department, “but it’s very preliminary. We know very little about the system and I’ll meet with staff on Monday to look at some preliminary stuff and see what they have. Then we’ll get back to them. We’re interested if it makes sense for us. If it does, then we’ll do a full study.”

Casteel said he met with Walton briefly after the city manager had talked to County Commissioner Steve Bauer about the possibility.

“There was council consensus and it gave me the authority to go ahead,” Walton said Thursday. “The council will make the final decision about what to do with our utilities. But I was given the authority to prepare these studies.”

“There has been a lot of economic pressure on municipalities recently,” Walton said. “So one of the things that has been happening here and around the country is more of an emphasis on regionalization of certain types of functions, including utilities. It just makes sense.”

KPUD presented a detailed proposal to the city last month, one that focused primarily on what the utility can offer the city, including a “postage stamp” rate system that it estimated would cut the city’s rates in half. The next study will focus more on the system’s assets and liabilities.

“It will be extensive and expensive,” said Bob Hunter, the utility’s assistant general manager whose specialty is water systems, during a public meeting with the city’s Utility Advisory Committee (UAC) last week. “But the second go-around is simpler and has a bottom line on it. And it has a due diligence side, which includes capital improvement projects.

“But before we invest in labor and field staff and engineering and all that, we need to be confident this is going to happen,” Hunter said.

A UAC sub-committee was scheduled to meet with KPUD Friday, Siburg said. The UAC will be involved with additional fact-finding about the water system being transferred to KPUD and will continue to advise the council, Walton said.

If the transfer occurs, KPUD would assume responsibility for capital improvements needed after 2014. The city has identified $5.4 million in improvements between 2011 and 2014, nearly half of which includes a $2.6 million improvement to the High School Reservoir scheduled to begin next year. Those improvements would be paid for by the city, either through money in its water fund or through a surcharge levied on water customers.

“My review of the proposed capital improvement projects is generally that they should be done, though I’d like to know more about the reservoir,” Hunter said. “I think the prices (of the projects) are high and through consolidation with North Bainbridge water (operated by KPUD), some of them may not be needed. But that’ll be part of the study.”

City Councilor Barry Peters, who attended the UAC meeting, voiced concern about financial risks of on-going surcharges if there is a need later for capital improvements because of unanticipated problems with the city’s aging Winslow system.

“With our old infrastructures,” Peters asked, “what is the risk of the surcharge continuing?”

Siburg stressed that if the city’s current water fund wouldn’t support all of the capital improvements, a once-only surcharge collected over a period of time would be levied to take care of costs through 2014.

“That would only happen at the beginning of the transfer if we needed it, but only then,” Siburg said. “But if we find a truly deferred maintenance and thin walls, then that’s another conversation. But it will happen before the transfer.”

Hunter said the rates won’t change other than a standard incremental increase throughout KPUD’s system.

“If we make a mistake after assessing the system and there’s a catastrophic failure,” Hunter said, “then we’ll take care of it without going back and doing a surcharge on the system. Once there’s a transfer, the ratepayers are our responsibility. They are ours to take care of. That’s what you get with a larger system. Think of it as an insurance pool.”

Hunter said he had taken a precursory look at the city’s water and sewer staff and concluded that field crews are “relatively lean.” He added that it appears the administrative part of the city system is where the most money can be saved.

“We budgeted it (in the first proposal) with three field employees for the water system,” Hunter said. KPUD’s North Bainbridge system has one field employee.

Overall, KPUD has about 13,000 customers, 95 percent of which are residential users. The utility manages 120 water systems, many of which were private entitities that KPUD purchased.

The largest system is North Peninsula, which has 5,400 connections and consists of nine different systems. North Bainbridge has 1,700 customers, compared to about 2,300 now being served by the city.

Siburg said KPUD’s focus is helping water systems with problems, including what Bainbridge is facing.

“We are about service,” he said. “We think we can bring a different culture – with consistent service and cost levels – that your active citizenry will want.”