DUD Taking City to Court Seeking Adjustment in Water Rates (VIEW VIDEOS HERE)

February 6, 2014
by: 
Dwayne Page
DUD Board members: Seated-Roger Turney, Joe Foutch; Standing, Danny Bass, Jimmy Womack, Hugh Washer

It appears the DeKalb Utility District is taking the City of Smithville to court in a move to bring down the new $5.00 per thousand gallon water rate the municipality began charging the utility January 1st.

During its regular monthly meeting Thursday in Smithville, the DUD Board of Commissioners voted 5-0 to authorize DUD attorneys to take whatever legal action is necessary to force the city to adjust its rate. The board also voted to authorize the DUD management team to bring down the rate DUD charges its customers, after the city rate to the utility is adjusted.

"We feel that $5.00 per thousand is not reasonable," said DUD Board Chairman Roger Turney. "During the court hearing, the City of Smithville hired a company to do a rate study. They came back with a figure of $2.67 per thousand gallons which they estimated was their costs to produce water. During that hearing it was said that's not really a true figure because at least 40 cents of that would be for transportation but there is no transportation costs when it comes to us. It goes through the meter and we pay to distribute it. So their real cost is a whole lot less than $5.00 per thousand and that even $2.00 to $2.25 is probably an exaggerated cost. We sent them (city) contracts and have agreed to pay that. We said we'll be glad to pay that amount but every time we have contacted them through correspondence, they would not talk to us unless we agreed to buy a minimum amount of water and that minimum amount is the same amount that we bought last year which means, in essence, as long as you buy all your water from us, we'll cut the rates back down. We feel that $5.00 is an unreasonable rate," said Turney.

(VIEW VIDEO OF ENTIRE DUD MEETING BELOW)

Though plans are still in the making to build its own water treatment plant once all the legal hurdles have been cleared, DUD may still have to purchase water from the City of Smithville for another eighteen months after construction begins until the plant is ready to open.

Turney said the city's new $5.00 per thousand gallon rate would add hundreds of thousands of dollars in costs to the utility if it were left in place. "In 2013, we purchased about 308,722,000 gallons from Smithville at the rate of $2.05 per thousand gallons. If we had been paying $5.00 per thousand for the water at that time, that would have increased our bill for that year $910,729 extra to the City of Smithville and they (city) would have had no extra expense," he said.

Under state law, water districts cannot operate at a loss, therefore the additional costs have to be passed on to the ratepayers. "As a district by state law, we cannot operate at a loss. We had to look at our costs and the new costs from the City of Smithville and see what we had to do to compensate for that. Their rate increase amounted to a 144% rate increase. We looked at what that's going to do to our bill from Smithville. We looked at the figures and decided to go up 42% on our customers. We realized that was an inconvenient thing to do but we really had no choice. We have to cover our costs," said Turney.

The DUD Board Chairman was quick to add that the 42% increase was only because of the city's recent rate hike to the DUD, and not because of the proposed water treatment plant. "That had nothing whatsoever to do with the water treatment plant. That 42% increase was strictly to cover the increase from the City of Smithville from $2.05 to $5.00 per thousand gallons," he said.

Turney also explained that while the DUD has to pay for all the water it gets from Smithville, the utility does not receive income from the entire supply it purchases due to water loss for various reasons. "Every single gallon that we buy from the City of Smithville, I don't care if it is to fight fires, if it's a leak, or to flush a line, we pay them $5.00 for every thousand gallons regardless of where it goes. They have no loss when it comes through our master meter. It's strictly our bill to pay. That's one of the things we have to look at as we consider what our rates are to our customers because that water has to be paid for to the City of Smithville," he said.

"I'm going to ask my board today to give our legal group the authority to proceed with any legal action necessary to see if we can't get some justification on that rate. We think that rate should be much, much lower than $5.00. I'm going to call on my board to give our legal counsel the authority to take whatever legal action it takes in order to get the City of Smithville to reconsider their cost increase to us," Turney said.

"At the same time, I'd like to ask the board to give our management team here the authority to lower our rates at the same time city rates are adjusted, so we don't have to wait for another meeting," said Turney.

The DUD board approved both requests.

Only four people attended Thursday's DUD board meeting, other than the board members, attorney, engineer, employees, and local media. While the meeting was not opened up for public comment, Chairman Turney updated the audience on the events which have occurred over the last couple of years, hoping to address public concerns or questions about the water plant project.

Turney said the DUD's decision to build its own water treatment plant was based on findings that it would save the utility money and reduce rates to customers over a period of time. " We had several different people, auditors and accountants look at what our costs would be to produce water and to buy water from Smithville. Every single scenario was looked at. Every possibility. Even the possibility if Smithville never raised another penny and kept it at $2.05 for the next thirty years. Every scenario we looked at it was going to be profitable for us to build our own treatment plant. We would, in the long run, save our customers money if we built our own treatment plant. So we as a board decided that would be our undertaking. That we would make efforts to try to build a water treatment plant. Interest rates are at an all time low. Grants are now available to us, and building costs are down because of the recession. So we felt the time was right for us to proceed on with a treatment plant and we made every effort to start with that," he said.

Another factor in the DUD's decision to build a water plant was that it might not have this opportunity again. "In fact, about ten years ago we looked at the possibility of building a water treatment plant," said Turney. "The Corps of Engineers said we as a district, DUD could purchase from them up to four million gallons of water from Center Hill Lake. As things happened at that time, the plans didn't work out. We actually had contracts bid. The contracts came back so expensive that we could not afford to build a treatment plant at that time. That's when we entered into a contract with Smithville. Since that time, the Corps came back to us about two years ago and asked us if we were still interested in water. That got us thinking. We said possibly. At that time, the amount of water that they would allocate to us had decreased from four million gallons to two million gallons due to the fact that many other places including Cookeville would love to have every drop of water from Center Hill Lake, the way Cookeville is growing. At that time we were fearful that if sometime in the future we decided to go ahead and build a treatment plant, that there might not be any water left for us. So we decided as a board at that time to go ahead and purchase from the Corps of Engineers that two million gallon allocation, so we're paying for that. We have bought two million gallons of water in the lake for future use. That has to be paid for every year. We then started making long term plans," Turney continued.

Had it not been for the City of Smithville's intervention, Turney said the DUD water plant would have been constructed by now. "Under the board's plan, the water treatment plant would have been completed by now if things had developed the way we wanted to. But unfortunately the plans for the water treatment plant came to a screeching halt in July 2012 when the so called ratepayers of DUD issued a petition with ten percent of the signatures of the ratepayers supposedly that said the rates we were charging were not right. It turns out that the petition was generated on behalf or at the expense of the City of Smithville. In fact, they hired a public relations firm out of Nashville to do everything possible to try to stop us from building a treatment plant. We were at this table. We had all the paperwork done to sign the bonds to proceed forward on the treatment plant and in about fifteen minutes before we signed those documents, the City of Smithville and the group they call the ratepayers of DUD presented that petition to the courts. Therefore the bond counsel would not sign off on the bonds at that time because of the litigation. So that put the plans at a halt," Turney continued.

The DUD Board Chairman said records reveal that tens of thousands of city taxpayer dollars have been spent by Smithville trying to thwart the DUD's plans. "The City of Smithville has decided that this is their main effort. Their main effort has been to stop us from building a treatment plant. To show you how intent the City of Smithville was in getting this done, when that petition was circulated, they offered the people that circulated the petition a prize for the one who got the most signatures. They also offered the Calvert Street Group a $25,000 bonus if we would agree not to build a treatment plant. So they were pretty adamant about trying to stop us from building a plant. At this time, at least from the records of the court hearing we had that day before the UMRB, the City of Smithville out of their taxpayer's money has spent in excess of $78,000 to try to fight our water treatment plant plus legal fees and the legal fees out of Nashville I guarantee you are not cheap," said Turney.

Meanwhile, Davidson County Chancellor Ellen Hobbs Lyle is expected to decide soon whether to uphold the Tennessee Utility Management Review Board's dismissal of the City of Smithville and the DUD ratepayer's petition seeking to stop DUD's plans to build a water treatment plant. Following a hearing last April, the UMRB found that DUD's rates at the time were reasonable, clearing the way for the utility to build the facility. The petitioners then filed an appeal with the Davidson County Chancery Court asking for a judicial review and reversal of the UMRB's decision.

If the Chancellor rules in favor of the DUD, Turney said construction may soon follow. "We're waiting and as soon as we can get comments from the Chancellor, the bond counsel has agreed, if she rules in our favor, that bond sales will go on and we'll proceed on with our water treatment plant as soon as possible. Realistically, it will take from the time we start, about eighteen months. So we've got about eighteen months when we'll have to buy water from Smithville. But as soon as we can get things rolling, we want to build our water treatment plant to take care of our customers the best that we can," Turney concluded.

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