City Attorney Sends Letter to DUD Outlining Proposals for New Deal

November 19, 2013
Dwayne Page
Vester Parsley

The City of Smithville is offering alternatives for the DeKalb Utility District to consider on a possible new water purchase agreement.

The existing ten year agreement is set to expire as of December 31.

In a letter to DUD manager Jon Foutch, dated Thursday November 14, City Attorney Vester Parsley, Jr. set out the proposals being offered by the city for the DUD board to consider. Although the mayor and aldermen have been consulted, no vote has been taken by the city council on this offer in either a regular or special meeting. Any accepted proposal by the DUD would have to be approved by the mayor and aldermen.

One of proposals calls for a new ten year deal with the city to charge the DUD $2.20 per thousand gallons for five years and $2.40 per thousand gallons for an additional five years. But that deal would be below the city's cost according to a recent study by Warren and Associates, paid for by the city, which revealed that the actual cost for Smithville to produce water is $2.67 per thousand gallons. Under this proposal, the city is asking the DUD for at least a minimum amount of water to be purchased during this ten year period and for DUD to abandon plans to build its own water plant.

The second proposal seeks to negotiate a new rate based on the DUD sale of three of its metering points to the City of Smithville.

During a workshop with the mayor and aldermen on Monday night, November 11, the city's utility engineer J.R. Wauford said that if the DUD were willing to sell the city the water lines and customers connected to at least three of its metering points, the city could be in a position to negotiate the price it charges the DeKalb Utility District.

DUD Chairman Roger Turney and board members Joe Foutch and Hugh Washer attended the workshop along with DUD manager Jon Foutch and DUD attorney Dewey Branstetter, Jr. of Nashville.

If the DUD were to reject the proposals offered herein and have no new agreement by January 1, the city may begin charging the DUD $7.50 per thousand gallons, the same rate it charges water customers outside the city.

The letter containing these proposals was delivered to Foutch last Thursday. The DUD board has not yet taken up the offer. The proposals are apparently being reviewed by DUD's attorney.

The DeKalb Utility District currently pays $2.05 per thousand gallons for the water it buys from the city. The rate has increased by five cents per thousand gallons each year since 2004.

The letter from Parsley to Foutch states as follows:

"The City of Smithville is very appreciative of the fact that you attended our workshop on Monday night, November 11 in Smithville and became aware of some possible solutions to the ongoing purchase of water issues. The Mayor and Board of Aldermen have asked me to write you a letter setting out proposals for your Board to consider in an attempt to settle our differences. The Board has asked me to give you the following proposals:

Proposal #1: The Board would reiterate our previous proposal to DUD whereby we agreed to sell DUD water for five years at the price of $2.20 per thousand gallons and an additional five years at $2.40 per thousand gallons. However, we would insist that a minimum amount of water be purchased during those ten years and further that DUD abandon their plans to build their own water treatment plant."

Proposal#2: The City would ask of your Board whether they are willing to negotiate the sale of at least three of four metering points which were mentioned in the work session on November 11. The City would like to negotiate to purchase the metering points for Evins Mill Road, Hobson Street, and the Old Sparta Pike. If your Board is willing to negotiate on these metering points we will need you to provide us with the number of customers served for each metering point and a map showing the water system served by each metering point so that we can determine the revenue that the City can derive from these points in order to make an intelligent offer. It is very possible the City will be able to offer the best deal for some variation of this proposal since it will provide Smithville with a long-term solution to the growth area problem."

"If DUD feels that neither of the above proposals are satisfactory, the City sees no reason to enter into a contract with DUD and will once the contract expires, charge DUD as an outside water customer for your current needs."

"The Mayor and Aldermen would appreciate your immediate consideration of these proposals and a response as to which proposal your Board intends to take," wrote Parsley.

If the city loses DUD as a water customer with the construction of a new DUD water plant, Wauford told the mayor and aldermen last week, "our calculations indicate that water rates would have to be increased to city customers by a minimum of 20%".

By expanding the city's service area with these DUD metering points, Wauford said the city could possibly set an "incremental" water rate to DUD at a level so that rates for city customers would not have to rise. "We could look at what the incremental rate would be. In other words, what would it take if they (DUD) would sell you (city) those customers? What would your rate to them need to be to avoid having to raise rates on Smithville's customers,"asked Wauford?

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