Is the City of Smithville selling water to the DeKalb Utility District at below cost?

September 17, 2010
Dwayne Page
Waniford Cantrell

Is the City of Smithville selling water to the DeKalb Utility District at below cost?

Waniford Cantrell, city resident and taxpayer, said he would like to know the answer to that question.

Cantrell, a former Smithville Mayor, spoke Thursday night during a public hearing prior to second and final reading passage of the new budget for the 2010-11 fiscal year, a spending plan that includes increases in water and sewer rates. The aldermen adopted the new budget 5-0 and all city employee pay raises therein were made retroactive to July 1st, 2010.

(Click here to read more about the new city budget

According to Cantrell, the city has budgeted a 43% water rate increase for it's own customers, compared to a 9 1/4% increase for the DeKalb Utility District. "We're going from $3.50 minimum water rate for the first thousand gallons to $5.00 and also from $3.50 to $5.00 for each additional thousand gallons. That's a 43% increase in water rates. That's a pretty hefty increase for our ratepayers. But then again we also know that we've got to do it because of the state requirement for the water accounts to be self sustaining."

The City of Smithville sells water to the DeKalb Utility District at $1.90 per thousand gallons and under an agreement adopted several years ago, the city usually increases the rate by a nickel per thousand each year.

Cantrell is concerned that the rate the city is charging the DeKalb Utility District may not be keeping up with costs and he suggested that an accountant be hired to determine the actual expense. "The thing that bothers me as I think that we're selling water to the utility district cheaper than what it cost to make it. I asked the question last year and again this year and we still don't know what it cost to make a gallon of water. Yet we're setting rates to sell that water."

"The DeKalb Utility District uses approximately twice as much water as the City of Smithville. To give you an example and these are rough figures, but last year Smithville used roughly 13.6 million gallons a month. The DeKalb Utility District used some 24.5 million gallons. It's not quite but it's roughly double what the city residents use. The utility district pays 61% less than what the city residents pay and we own the water system."

Cantrell also questioned why Smithville was selling water to the DeKalb Utility District at $1.90 per thousand when the City of Alexandria pays the Smith County Utility District $2.72 per thousand to purchase water. "That's about 47% more than we receive from the DeKalb Utility District."

Cantrell said the city really needs to know how much it costs to produce a thousand gallons of water before it sets rates." We've got to find out how much it cost to make a gallon of water. I think we really need to do it because we can't keep on selling water, if we are, cheaper than what it costs to make it. It's against state law to give a utility away or to sell it cheaper than what it costs to make it. The reason for that is it requires the rest of the ratepayers to make that up. If we're selling the utility district water cheaper than what it costs to make it then the city residents are subsidizing the utility district customers."

"In my opinion, we've got to find out what water costs. How do we do that? The council should, if the mayor so desires, approve funds for an experienced cost accountant because that's all it takes to figure this up. I think it would be well worth our money to hire one. If we're selling it (water) to them (DUD) at a reasonable rate and not less than what we pay, fine. But if we're selling it to them for less than what it costs us to make it we need to go back and amend the agreement we've got with the utility district and amend our budget. Like I said, it's against the law to give away a utility or to sell it for less than what it costs because it requires the rest of the ratepayers then to make that up."

Mayor Taft Hendrixson suggested that the city could get into reassessing costs once the water plant rehabilitation is completed next spring. "I think one thing, the water plant has been band aided, baling wired, and whatever and I think when we get the new plant done, which should be in the spring, we will be more able to know what it's costing us and we will do that."

Meanwhile Faye Sandosky, who also spoke during the public hearing, said she was concerned about the city's water loss. "In addition to me not wanting to pay more than DUD customers are paying, I also don't want to be paying for water that we're producing but we have no clue where it's going. I believe that's the job of this board, to follow up on that and give us an answer. Maybe our rates wouldn't have to be raised this much if all of our water that we're producing were being paid for. That is a concern that needs to be addressed and it needs serious attention."

In response, Mayor Hendrixson gave one explanation for part of the so-called water loss "The filters have been in that water plant for forty something years. When we get the new ones, they'll probably have to be backwashed about once a week. It's about 400,000 gallons of treated water that they use to back wash them. Right now they're having to do that two or three times a week so that's one thing that's going with some of the water, which is a great deal. The new water plant will remedy that part of it."

In April, Water Plant Supervisor Kenny Dyal reported that for at least the previous couple of months, the city had a significant water loss. "In February we pumped 49-million, 401 thousand raw gallons of water from the lake. We treated 44-million, 602-thousand gallons. The gallons sold were 34-million, 649-thousand 400. We had a loss of 9-million, 952-thousand 500 gallons. That's a 23% loss."

"In March, we pumped 55-million, 060-thousand gallons from the lake as raw water. We treated 48-million, 956-thousand. We sold 34-million, 116-thousand gallons. That's 12-million, 845-thousand gallons lost. That's 26%. It's a big loss."

Dyal added that while all utilities have some water loss, this is out of the ordinary."There's always loss, but the normal loss is between seven and fifteen percent. If we keep it below fifteen percent, the state is happy. But when it starts getting above fifteen percent they start wondering where your water is going."

Alderman Shawn Jacobs on Thursday night explained that Dyal has since identified some leaks which have been repaired (since his April report). "I believe if I'm not mistaken that Mr. Dyal has identified two or three fairly significant leaks in town that have been repaired, I know of one or two in particular that have been repaired and the water loss percentage is coming down. It's certainly not where we want it to be."

Alderman Jacobs continued "My concern is also that our meter reading system is so old that we're not getting an accurate read of how much water we are producing, but I think if and when we get the telemetry to do the automated metering system at homes as well as at the water plant, I think that will give us a better idea as well. I agree it (water loss) is a serious concern and something we definitely need to get a hold of."

"I agree with Mayor Cantrell that we do need to get a grip on how much this is costing us (to produce water). I don't know if there is anything we can do in this budget. Could we pass this budget tonight and then do an investigation and amend the water rates later? Or is our metering equipment so old at the plant per se that we still would not have an accurate reading? It is a serious concern and we want to get to the bottom of it, I'm just not sure whether it can be done before the plant is rehabilitated."

Alderman Steve White agreed saying "I think that whenever we do get the new meters in place we'll find a lot of the water that has been unaccounted for."

As far as the water and sewer rate increases, Alderman White said he had long advocated for budgeting smaller increases before now rather than waiting and making such a large adjustment at one time. " I wanted to raise it a little at a time down through the years, but the board didn't see fit at the time, they thought we needed to wait. But when you look at that percentage (43% increase spread out) over the last twelve or thirteen years, you're just looking at roughly maybe three percent a year which is not that great of an increase since the last increase."

The city last increased water rates in 1998.

In February, the aldermen voted to apply for funding through a Rural Development Grant/Loan program to help the city convert to a new automated water meter reading system.

Will Taylor of the Tennessee Association of Utility Districts, who addressed the mayor and aldermen in February was to assist the city in making the application.

Through Rural Development, the city could be eligible for up to a 45% grant for the total project, with the remainder to be funded through a low interest rate loan, which the city could carry for several years.

Taylor said in February that benefits to the city by having an automated meter reading system are that it would reduce water loss by an estimated seven to fifteen percent and cut costs associated with the current manner of reading meters. For example, with an automated system, an employee could read all water meters in the city in just a day or two each month. This would also save fuel costs and wear and tear on city vehicles.

Many utilities are using AMR as a way of improving customer service while reducing the cost of reading meters. Some AMR systems use miniature radio transmitters attached to each water meter. These utilities are then able to collect the readings from handheld radio receivers and from moving vehicles. With this process, one driver in a vehicle is able to read more meters in one day. At the end of the day, the meter reader unloads the information to the city's billing system.

In other business, the aldermen adopted on second and final reading a new ordinance setting a wage scale for salaried city employees. Hourly employees will continue to be paid according to the existing wage scale. In fact the only change regarding hourly employees will be that the aldermen will decide each year whether or not to budget a cost of living pay raise for them.
(Click here to read more about the new wage scale ordinance for salaried employees

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