According to Smithville Mayor Taft Hendrixson, The City of Smithville stands to eventually lose it's largest water customer and over a half million dollars in sales each year if DeKalb Utility District goes through with plans to build its own water treatment facility.
Hendixson said that it would mean increases in water rates to city customers as well as those served by DUD if the proposal is enacted.
  DUD entered into a ten-year agreement with the City of Smithville in 2004 to purchase water at $1.60 per thousand gallons with a five cent escalator increase per thousand gallons each year of the contract.
DUD currently pays $1.95  per thousand gallons.
 By law, the city must sell the DUD water at no less than cost. According to this year's budget, actual sales to DUD for the year ending June 30, 2009, was $541,286.
In order to build the proposed $10 million water plant, the DUD needs financial assistance, and is seeking help through USDA Rural Development's loan/grant program.
The aldermen voted Monday night to send a letter written by Mayor Hendrixson to the USDA stating the city's opposition to the project.
Mayor Hendrixson composed a letter on behalf of the City of Smithville to Bobby M. Goode, State Director of USDA Rural Development saying;
" It has come to our attention that the DeKalb Utility District has a pending pre-application with your agency to fund a water treatment plant and raw water intake which reportedly involves over $10 million.
Smithville currently furnishes DUD water at a rate of $1.95 per thousand gallons under a contract through 2014. We have furnished DUD with water at reasonable rates since its inception and we desire to continue to do so.
If your agency approves this funding and the facilities are built, the results will be disastrous for Smithville, DeKalb County and the customers of the DUD.
Smithville is completing a $2.8 million modernization of our water treatment plant which has a capacity of 4.0 million gallons per day; our source of supply is Center Hill Lake, however our intake is on the main channel, which provides best quality water.
Our water demand over the past year averaged less than 45% of capacity with peaks at slightly over half capacity which, of course, includes DUD.
If DUD builds a water treatment plant, their water rates to their customers will have to be increased considerably in order to pay their loan and fund depreciation as per state law and Smithville's rates will have to be increased because we will require the same operating expertise at our treatment plant even with a slight reduction of labor. Our reduced cost of power and chemicals will not come close to covering the amortization, including depreciation, of the current improvements.
As you can see, we have plenty of capacity to furnish DUD water for expansion, we are selling it at a reasonable rate, and we have no objection to their expansion.
It would be a gross waste of available monies to fund another water treatment plant as well as a detriment to several thousand people," Hendrixson wrote.
Henrixson mentioned that a "Notice of the Availability of an Environmental Assessment" was published in the local newspaper.
The ad stated that "The USDA, Rural Utilities Service has received an application for financial assistance from the DeKalb Utility District.
The proposed project consists of the construction of a new water treatment plant on approximately 30 acres of land, which the DUD owns, near Holmes Creek Road.
The project also consists of a raw water intake near the location of the former Holmes Creek Marina on Center Hill Lake, three new pump stations, and necessary transmission lines to accommodate water distribution throughout the DeKalb Utility District's service area."
DUD manager Jon Foutch, told WJLE Monday that the DeKalb Utility District is growing and adding more customers, and that the utility wants its own water treatment plant in order to better control its future water supply expansion issues.
DUD now purchases almost all of its water supply from the City of Smithville except for the Silver Point Community.
DUD buys water from the City of Baxter at $6.50 per thousand gallons for that area of the county.
According to Foutch, another plant would increase the area's water capacity, which could be used as a selling point for possible industrial expansion and recruitment.
Foutch said that officials of the DUD have no ill will toward city officials, and are not taking this action because of any personal vendettas. "We're not wanting to build a treatment plant because we are mad at the City of Smithville,” Foutch said. “We just feel it's the best business decision for DUD."
The DUD has reportedly settled with the U.S. Army Corps of Engineers on a storage volume fee arrangement to draw up to two million gallons a day once the plant is in operation.
Should the DUD be unsuccessful in it's efforts to secure USDA Rural Development Loan/Grant funds, the utility is prepared to proceed with the plans through other funding sources.
"We have had an outside firm come in and look at our books and they have said this is feasible for us. So even if we don't get the grant money, we can proceed with financing through another avenue," said Foutch.
Foutch said Rural Development funding would be the best option for the DUD and it's customers because the utility could potentially qualify for grant monies which would not have to be repaid. For example, on a $10 million project, Foutch speculated that the DUD could possibly obtain a $3 million grant along with a $7 million loan.
Without the grant funds, DUD would be responsible for re-payment of the entire $10 million loan, through another funding agency.
If the financing can be worked out, Foutch said construction could begin as early as the end of 2012.
DUD officials are hoping that the plant would be completed and ready for operation by 2014.
This is not the first time the DUD has seriously considered building its own water treatment plant. In January, 1999 the DUD was awarded a $1 million Rural Development Grant and a $2,380,000 loan to pursue a treatment facility.In addition to the money for the water plant, another $500,000 was made available to the project from a Community Development Block Grant for an elevated water storage tank which now stands at the top of Snow Hill. The tank was built to solve the problem of water pressure in some areas.
When the time arrived to build the plant, however, DUD reportedly discovered that the costs were much more than the available grant/loan funds.
While DUD had sufficient local reserves to make up the difference and assurances from Rural Development for extra financial help if needed, they decided instead to enter into negotiations with the City of Smithville for a new water rate.
Some of the unused loan/grant funds were later employed to make other improvements to the existing infrastructure.