DUD Proposes New Water Deal After Rejecting City Offers

December 12, 2013
Dwayne Page
Dewey Branstetter, Jr

The DeKalb Utility District has rejected the city's latest proposals for a new water purchase agreement but is offering one of its own.

DUD attorney Dewey Branstetter, Jr., in a letter to City Attorney Vester Parsley, Jr. dated Monday December 9, wrote that "the DeKalb Utility District is willing to enter into a 10 year contract with the City of Smithville, with the rate for the first five years of the contract being $2.67 per thousand gallons, and with the rate for the second five years of the contract being $2.80 per thousand gallons. For reasons that I am sure you understand, DUD is not willing to enter into a contract that requires minimum purchase amounts."


DUD.pdf (136.62 KB)

The DUD currently pays $2.05 per thousand gallons for water it purchases from the city but the contract is due to expire on December 31.

Facing the deadline with no new agreement, the Mayor and Aldermen are scheduled to convene in special session Thursday, December 12 at 5:00 p.m. at city hall for the purpose of setting a new rate for the DUD.

The city's proposals were sent by City Attorney Parsley in a letter to DUD Manager Jon Foutch on November 14. One of them provided for a new 10 year deal with the city to sell water to the DUD at $2.20 per thousand gallons for the first five years and $2.40 for the remaining five years. While these rates are below the city's current cost of producing water, according to a recent study done by Warren and Associates, the city was willing to make this deal provided that the DUD abandon plans to build its own water plant and buy a certain amount of water over the next ten years from the city. In its second proposal, the city sought to negotiate a new rate based on the sale of three DUD metering points to the City of Smithville.

In his letter to Parsley, Branstetter wrote that the DUD Board of Commissioners has determined that it is in the best interest of DUD's customers to build its own water treatment plant, and at this time is unwilling to consider abandoning those plans. But while the city's proposals are unacceptable to the DUD Commissioners, Branstetter said they do want to work with the City of Smithville to reach an agreement. He said the proposed new rates offered by DUD are being extended in good faith and based upon the cost study performed by the engineer hired by the city (Warren and Associates). "Mr. (Jerry) Warren stated in his study that it cost (city) approximately $2.67 per thousand gallons to produce water. In addition, in his sworn testimony at the UMRB hearing (in April), he further stated that because there would be no transportation costs for providing this water, that the rate could be reduced by as much as 42 cents per thousand gallons. The rate we are proposing is actually higher than what the study and testimony revealed would be a reasonable rate to charge a wholesale customer such as the DeKalb Utility District," wrote Branstetter.

Without an agreement by January 1, the city officials have said that the DUD could be charged as much as $7.50 per thousand gallons, the same as other water customers outside of the city. However in his letter to Parsley, Branstetter said such a move would be unrealistic for a wholesale customer such as DUD and suggested that it might be in violation of state law. "To propose to charge DUD $7.50 per thousand gallons is unreasonable, and based upon the information provided by your own consultant and engineers, would be several times what a reasonable rate should be. As I know you are aware, there are several sections in the Tennessee Code that are applicable to municipally owned water systems, and all of those code provisions mandate that a city charge a reasonable rate for its water services. I would specifically direct your attention to Tennessee Code Annotated 7-34-114 (a) and 7-35-414, both of which require that a municipality that operates a water system must charge just and equitable rates," wrote Branstetter.

He added that the DUD Board of Commissioners are hoping to resolve this matter before the current contract expires and would like a response to their offer soon from the city. "In order to help facilitate our discussions, the proposal which I am making in this letter has received the unanimous approval of the Commissioners of the DUD, which occurred at their last regularly scheduled monthly meeting. We would also request that any response have the approval of the Board of Aldermen of the City of Smithville so that the Commissioners will know that the city has approved any response to our proposal," wrote Branstetter.

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