The Board of Commissioners at DeKalb Utility District (DUD) held their regular monthly meeting Thursday, and not only did Board Chairman Roger Turney speak out, giving those in attendance a summary of the situation between the utility and the City of Smithville from DUD’s point of view, the board authorized its legal counsel to take the city to court in an attempt to lower the $5 per 1,000 gallon water rate Smithville now charges DUD.
DUD manager Jon Foutch shared that Warren County Utility District has expressed interest in selling water to DUD at a rate much more reasonable than the city as well.
The DUD board voted 5-0 to authorize their attorneys to take whatever legal action they deemed “proper and necessary” to force the city to drop the rate they are charging the utility.
DUD management was also given the go-ahead to lower the rate the utility is charging its own customers if the cost from the city is lowered.
Turney said he felt DUD had sound legal footing for the suit.
“We feel that $5 per 1,000 gallons is not reasonable,” Turney said. “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 1,000 gallons, which they estimated was their cost 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 are 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 per 1,000, and that even $2 to $2.25 is probably an exaggerated cost. We sent them 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 is an unreasonable rate.”
Turney said the rate the city is currently charging DUD will profit the city several hundred thousand dollars if it continues.
“In 2013, we purchased about 308,722,000 gallons from Smithville at the rate of $2.05 per thousand gallons,” Turney continued. “If we had been paying $5 per 1,000 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 would have had no extra expense.
“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 percent 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 percent on our customers. We realized that was an inconvenient thing to do but we really had no choice. We have to cover our costs,” Turney said.
“That had nothing whatsoever to do with the water treatment plant. That 42 percent increase was strictly to cover the increase from the City of Smithville from $2.05 to $5 per 1,000 gallons,” the chairman explained.
Turney recommended that the board approve legal action against the city.
“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. 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 suggested.
“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,” the chairman concluded.
The board did so, approving both requests.
Turney also defended DUD's plans to construct its own water treatment facility, saying research showed that it would save both the utility and its customers money in the long run.
“We had several different people, auditors and accountants, look at what our costs would be to produce water, and to buy water from Smithville,” he said. “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 30 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,” Turney said.
“ About 10 years ago we looked at the possibility of building a water treatment plant,” Turney continued. “The Corps of Engineers said that 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,” he went on.
“Under the board's plan, the water treatment plant would have been completed by now if things had developed the way we wanted them 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 10 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 15 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.”
“The City of Smithville has decided that this is their main effort,” Turney continued, “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 $78,000 to try to fight our water treatment plant, plus legal fees, and the legal fees out of Nashville I guarantee you are not cheap.”
Turney said the DUD board is awaiting the final decision of Davidson County Chancellor Ellen Hobbs Lyle decision on the appeal of the Tennessee Utility Management Review Board's dismissal of the City of Smithville and the DUD ratepayer's petition to derail DUD's plans for a treatment plant, but are ready to resume the project right away.
“We're waiting, and as soon as we can get comments from the Chancellor, the bond counsel has agreed, if she rules in our favor, that bond sales will go on and we'll proceed on with our water treatment plant as soon as possible,” he said. “Realistically, it will take from the time we start, about 18 months. So we've got about 18 months when we'll have to buy water from Smithville. But as soon as we can get things rolling, we want to build our water treatment plant to take care of our customers the best that we can,” He concluded.
Meanwhile, DUD attorneys Dewey Branstetter, Jr. and Keith Blair filed suit against the city Friday in DeKalb County Chancery Court.
The suit asks the Chancellor to find that the new 5$ per 1,000 gallon rate that the city charges DUD is unreasonable; that the rate be set at $2.25 per thousand gallons, which the DUD believes is the actual cost of providing water services; that the city be prohibited from charging any rate to the DUD in excess of $2.67 per thousand while this litigation is pending; and that the city be prohibited from disconnecting the DUD from its water system while this lawsuit is pending (For a PDF of then lawsuit in its entirety, see the link above).
Meanwhile, DUD Manager Jon Foutch told the board at Thursday’s meeting that the Warren County Utility District (WCUD) has shown interest in selling water to the DUD at a more reasonable rate than the Smithville.
“I talked with Mike Green (of WCUD),” Foutch said. “He actually called me. We had been talking back and forth about an emergency connection. He said right now he might would have to extend a line, but he could possibly supply us with at least half of the water we would need at a much lower cost than what the City of Smithville is charging now. If that doesn't change, it is definitely a possibility we're going to look at, because when all this is said and done we want to have an emergency connection with them. Green said for us to keep this in  mind, because they are in the business of selling water too.”
No action was taken on the matter.