DUD and City May Negotiate New Water Contract

September 25, 2012
Dwayne Page
DeKalb Utility District
Smithville City Hall

Are the DeKalb Utility District and the City of Smithville ready to make a deal on a new water contract?

With plans for a new DUD water treatment plant still in the making, officials of the DUD are asking city fathers to make them a proposal for a new thirty year contract.

Meanwhile, the State Utility Management Review Board will meet next Thursday, October 4 in Nashville to discuss a possible review of "rates charged and plan of services provided" by DUD related to the proposed water treatment plant construction project.

The City of Smithville currently sells water to the DeKalb Utility District for $2.00 per thousand gallons and under terms of the contract, the rate increases by five cents per thousand in January of each year. The two parties entered into the contract in 2004 and it expires in 2014.

On August 28, DUD manager Jon Foutch sent to City Recorder/Treasurer Hunter Hendrixson, a rough draft of a proposed contract for water purchase by the DUD from the City of Smithville. The proposed contract was accompanied by a request for DUD officials to inspect and copy certain "public records". Foutch wrote, "In order to aid in the determination and discussion of a reasonable rate, we need certain information to review."

"We asked for these documents from the city so DUD can be prepared for any circumstances," Foutch told WJLE Tuesday. "We just want as much information as possible available to us in order to make the best decision for our customers," he said.

Foutch's request included "any and all audited financial records, audit reports, and year end balance sheets pertaining in any way to the City of Smithville water distribution system, including the water treatment plant, for the past five years."

"Any and all records that document the expenses and cost incurred by the City of Smithville in the past five years, including engineering costs, related in any way to the procurement, treatment, and sale of water."

"Any and all Cost of Service Study (COSS) performed within the past five years regarding rates, and methodology of rates, charged to customers of your water supply."

"All consultant fees, paid or incurred, including public relation consultants, incurred by the City of Smithville pertaining in any way to the water treatment plant of the City of Smithville or the proposed water treatment plant of the DeKalb Utility District, for the past five years."

"Any and all correspondence or written communication of any type, including email transmittals, from the City of Smithville, or on their behalf, to any government or regulatory entity that pertains in any way to the proposed construction of the water treatment plant by the DeKalb Utility District."

On September 6, Hendrixson responded to Foutch's letter "The City of Smithville is more than willing to meet with the DeKalb Utility District about a long term water purchasing agreement. Please feel free to contact me in setting up a meeting between both interested parties in hopes to discuss the current proposal by the DUD. If you would prefer to have representatives from both parties meet informally to discuss it, that will work as well. We are up for any suggestions," wrote Hendrixson.

Foutch replied in a letter on September 19, "I would ask that you please advise as to the city's position on the proposed contract and or provide me with a proposed contract that the city would like to submit for DUD's consideration. I ask that you please address this issue as soon as possible and I appreciate your kind attention to this request," wrote Foutch.

The DUD has already secured an ARC grant as well as loan and grant funding from USDA Rural Development for the proposed water plant, along with a bond resolution which has been approved for the authorization and issuance of waterworks revenue refunding and improvement bonds. But to date the bond sale has apparently not been finalized.

Even if the DUD proceeds with its plan to build a water plant, it will most likely need a new water contract with the City of Smithville, at least in the short term, since its current agreement with the city is due to expire by the first of 2014, before a water plant could be completed

DUD and City officials are also awaiting the outcome of a possible review by the Tennessee Comptroller and the Utility Management Review Board of DUD "rates charged and plan of services provided". The issue is on the UMRB's meeting agenda for October 4. A petition, signed by more than 1,000 persons was submitted to state officials in July trying to force a review. The petition drive was spearheaded by the Calvert Street Group, a Nashville public relations company, hired by the City of Smithville in April to better educate the public, from the city's perspective, on the impact of a plan by the DeKalb Utility District to build its own water treatment plant.

"The mission of the Tennessee Comptroller and the Utility Management Review Board is to look for duplicity, for taxpayer waste to protect ratepayers, and rate increases that are out of line with what their plans and their debt management policy calls for," said Darden Copeland of the Calvert Street Group.

The City of Smithville, according to Copeland, also retained the services of Nashville attorney and former Metro Nashville Mayor Bill Purcell to help "walk the petition through the process" and get answers from the state.

The petition filed with the UMRB states "DUD ratepayers ask the UMRB to find that the DUD acted wrongly in approving the financing of the construction of a redundant water treatment facility in DeKalb County and in its service expansion and resulting rate increases and take all necessary action to provide DUD ratepayers with all appropriate relief afforded to them under the laws of the state of Tennessee."

While DUD officials believe the UMRB does not have jurisdiction on this issue and that the petition will ultimately be dismissed, they want a quick resolution and are concerned that the UMRB may entertain a possible continuance or delay at the October 4 meeting. Keith Blair, attorney for the DUD, asked for no further delays in a letter dated September 18 to the UMRB Board Coordinator Joyce Welborn and Greg Cothron, Assistant General Counsel for the state comptroller's office. "As counsel, it has come to my attention that the entity that filed the petition is seeking a rescheduling of the jurisdiction issue. I understand that the jurisdiction issue will be on the agenda at the October 4 UMRB meeting," wrote Blair.

"I write this letter to convey DUD's position on a possible continuance. While they understand that scheduling conflicts occur, they strongly disagree that a continuance is warranted and will do nothing but further delay the ultimate resolution of this issue and cause additional financial loss to DUD," wrote Blair.

Blair's letter goes on state, "As you are aware, DUD has taken significant steps to initiate the construction of a water treatment plant as well as making plans to restructure certain long term debt for additional cost savings to their customers. Once the petition in question was filed, at a time when the closing of the bonds to finance this project was imminent, DUD cautiously delayed the closing and finalization of the financing of this project in order to obtain proper verification from UMRB that the petition had no merit and, most importantly, that the UMRB did not have jurisdiction to consider the issues presented."

"We believe that Mr. Cothron's letter clearly and correctly sets out that the petition in question fails to provide a basis for review by the UMRB and that the UMRB does not have the jurisdiction to hear the same. With the recommendation that Mr. Cothron will make to the UMRB at the October meeting, any continuance and rescheduling of this issue to a future meeting will do nothing but prolong the dismissal of this petition and create even further delay of DUD being able to move forward on this long awaited project."

"With this pending petition, DUD continues to suffer monetary losses each day due to their inability to proceed forward with the planned refinancing and water treatment plant. It is clearly evident that interest rates and construction costs are at an all time low. The interest rates and construction rates will no doubt increase in the coming months which will damage DUD financially causing them to spend more on this project than anticipated which potentially could result in additional rate increases. Further, the longer that this issue is in limbo, the longer that DUD will have to purchase water from the City of Smithville, the proponent behind the petition in question."

DUD respectively requests that there be no delays granted of this issue being on the agenda for the October 4 meeting. A delay will do nothing but prolong the final resolution of this matter and cause DUD continued delay and financial loss that will do nothing but hurt the customers of DUD. A delay only benefits the petitioner, with no due cause being shown and severely hurts DUD each day that passes without resolution." wrote Blair.

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