Wauford Warns of Dramatic Rate Increases If DUD Builds Its Own Water Treatment Plant
The DeKalb Utility District is proceeding with plans to build its own water treatment plant off Holmes Creek Road in the Yolanda Hills Drive area and Smithville Mayor Taft Hendrixson and members of the city council are not happy about it.
In order to try and stop it, the aldermen Monday night voted to hire the Calvert Street Group of Nashville, a public relations firm, to launch a campaign to let the public know that, according to city officials, water rates for both Smithville and DeKalb Utility District customers will increase dramatically if this proposed water treatment plant is built and the DUD stops purchasing water from the City of Smithville.
If the DUD goes through with it's plans, the City of Smithville stands to eventually lose it's largest water customer and over a half million dollars in sales each year.
J.R. Wauford, the city's utility engineer since 1962, who spoke during Monday night's meeting, said a DUD water plant is unnecessary since the city's newly renovated water treatment plant has more than the capacity to meet current and future needs of the City of Smithville and the DeKalb Utility District. "You(Smithville) have a four million gallon a day water treatment plant. You're producing about 1.8 million gallons per day. About 700,000 to 800,000 gallons is going to the DeKalb Utility District. Your contract with DUD now gives them the right to buy two million gallons a day which is well within your capability of doing so. They're (DUD) proposing to build a three million gallon a day treatment plant at Holmes Creek," said Wauford.
"About ten years ago, we (Wauford Engineers) were asked to assist in negotiating with the DeKalb Utility District a water contract which we did. Last October, Mr. Hendrixson advised me that the DUD was planning on building a water treatment plant and asked me to look into the matter and see what their proposal was and give him an assessment of what it would mean to Smithville. Pursuant to a Freedom of Information request I examined the files of Rural Development in Cookeville and determined from their files that the DUD was indeed proposing to build a water treatment plant by presumably using their own water and stop buying it from Smithville. Their proposal was similar to the one they made ten years ago. The reason the one ten years ago didn't fly was when they took bids on it, they ran some two or three million dollars over their estimate and they weren't going to fund it. So they negotiated a contract with Smithville," said Wauford.
"This proposal proposes to increase the water rates to their (DUD) customers by fifty percent. If they disconnect from your system, my preliminary assessment is that your (Smithville) customers will have to absorb a ten, fifteen, twenty percent increase. Somewhere in the range of ten to twenty percent. Ten percent being the lowest. You (Smithville) are selling water to DUD at what is a reasonable rate, less than other utilities around you, namely Sparta, Lebanon, Cookeville, and Livingston. So it seems to me that it's a matter of whether or not you want to advise the people of DeKalb County of what is going on and how much their water rates are likely to increase,' said Wauford.
"They (DUD) are projecting that this fifty percent increase goes along with a three percent compounded growth rate. When I say a three percent compounded growth rate, I mean for forty years. I mean 1.03 times 1.03 forty times which means that their customer count will be 3.26 times what it is now. DeKalb County, which is their main service area grew three tenths of one percent the last ten years. They (DUD) serve most of DeKalb County except for Smithville and Alexandria. They also serve a good bit of Cannon County. They serve a little sliver of Smith County and a small sliver of Wilson County. If you assume a growth rate of two percent, that would be 2.20. So you can see that this three percent growth rate is higher than anybody around including Murfreesboro, Franklin, and places like that. It appears to me that their customers are more than likely are going to see some terrific rate increases over a period of time," said Wauford.
"Smithville has just modernized their water plant and put in standby generators at both the water plant and the raw water intake. You have modernized the equipment in the plant. It needed to be done whether you continue to have DeKalb Utility District as a customer or not," he said.
"Mayor Hendrixson and I met with Bobby Goode, the state director of Rural Development and were not treated really courteously. We objected to what he was proposing to do. What the Rural Development is proposing to do is to give them (DUD) a million dollars, loan them five million dollars, and then they propose to borrow through the Tennessee Utility District Association to fund the other five million dollars. Our opinion is in estimating this project at $10.5 million, that they (DUD) have underestimated again which would be in keeping with the previous estimates of the same engineers ten years ago. Our experience in raw water intakes is quite extensive. We have done sixteen raw water intakes, three on the Caney Fork River so we believe our estimates are pretty good, but they are arguable. But what is not arguable is the fact that they (DUD) are going to raise their water rates fifty percent based on a three percent growth rate and that's going to adversely affect your (Smithville) revenue stream," said Wauford.
"Mayor Hendrixson and I talked about it and he asked me to locate a professional (Calvert Street Group of Nashville) to perhaps lead a program to inform the public," said Wauford
After Waufords' remarks, Mayor Hendrixson said if DUD proceeds with its plan it could also mean layoff of city water department employees."If they do this, we will have to lay off one or two at the water plant because we definitely will not make half the water we're making and we won't need all those folks. We've spent three million dollars(water plant renovation) and that means depreciation is going up starting this year so expenses will be more and there are fixed costs, depreciation, and insurance that you can't do anything about whether you sell two gallons or two million gallons a day," said Mayor Hendrixson.
In 2004, officials of the DeKalb Utility District entered into a ten year agreement with the City of Smithville to purchase water at $1.60 per thousand gallons with a five cent escalator increase per thousand gallons each year of the ten year contract. The DUD currently pays $2.00 per thousand gallons. The contract is scheduled to expire in 2014. By law, the city must sell the DUD water at no less than cost. According to this year's budget, actual sales to "other districts" (DUD) for the year ending June 30th, 2010 was $539,455.
In order to build this proposed $10.5 million water plant, the DUD needs financial assistance and is seeking help through USDA Rural Development's loan/grant program. The plan is to construct a three million gallon a day plant, intake, and transmission lines. In an effort to derail DUD's funding for this project, Mayor Hendrixson recently sent letters in opposition to Bobby M. Goode, State Director of the USDA Rural Development and Justin P. Wilson, Comptroller of the Treasury.
In the letter sent last month to Bobby M. Goode, State Director of USDA Rural Development, Mayor Hendrixson wrote, "we respectfully request that your agency NOT participate in the funding of this project for the following reasons:
1. Smithville has adequate high quality water to meet the foreseeable needs of DUD. We currently pump 1.7 to 2.0 million gallons per day (MGD) of which we sell 0.7 to 0.8 MGD to DUD. We have offered to make 2.0 MGD available to DUD on a 10 or 20 year contract. Our water rates to DUD are reasonable, currently at $2.00 per thousand gallons.
2. Most important is the financial effect on DUD's customers, who will see their water rates increase 50% or more, and on our customers, whose rates will also have to be increased due to the loss of this big customer.
3. DUD's projected growth rate is 3% annually for 40 years. This would amount to their customers more than tripling (3 percent compounded for 40 years is 3.26). This is unreasonable when one considers that the population increased only 0.3% for the past ten years (0.3 percent compounded for 40 years is 1.13). If this growth rate proves too optimistic, it appears DUD's rates could easily triple.
The more prudent action for DUD appears to be to negotiate a new 10 year contract with Smithville, allowing DUD to sell water to Alexandria or Watertown and expand their service within a 2.0 million gallon a day allocation (60 million gallons per month). State regulation requires planning begin for expansion when a water plant is at 80% of capacity; therefore, we have 3.2 MGD available, and DUD would have 2.4 MGD available with their 3.0 MGD plant. If we continue to furnish water, NOBODY would be required to pay a higher water rate due to construction of an unneeded water treatment plant.
For these reasons, we respectfully request that your agency reject this application. I am sure there are plenty of needed projects where these funds can be put to better use".
In a letter sent last month to State Comptroller Wilson, Mayor Hendrixson wrote, "I am appealing to you to prevent an unneeded project which will immediately raise the water rates for the customers of the DeKalb Utility District by 50% according to their calculations, and raise the water rates for the customers of the City of Smithville by 15 to 25%. The Utility District's customer rates will be raised considerably more than 50% when the projected 3% exponential growth rate for the District fails to materialize".
"The short story is that Smithville sells DUD all of its water, which amounts to about 24 million gallons per month. This represents about half of the water which we produce. DUD has an allocation of 60 million gallons per month from us and we are willing to renew our contract which expires in 2014. Our position is that this project is not needed and is not financially feasiable due to the unreasonable assumed growth rate".
"I am writing to you because I understand a private bond sale through TAUD/Wiley Brothers is under consideration for either all or part of this $11 million project, and I understand that you have authority to approve or disapprove this bond issue."
"I respectfully request your careful consideration of this matter".
Mayor Hendrixson also sent a letter last month to Roger Turney, Chairman of the DeKalb Utility District, which states" As you may recall, I wrote to you last October about negotiating a new contract or an extension of our existing contract with DeKalb Utility District. We have determined that you propose to build a 3.0 million gallon a day water treatment plant. According to state regulation, you can load your proposed plant up to 2.4 million gallons per day (80% of rated capacity) before TDEC will require that you commence plans to expand. Our renovated water treatment plant has a capacity of 4.0 million gallons per day. We have installed standby generators at both our raw water intake on the main channel of Center Hill Lake and at our treatment plant; thereby, as nearly as possible, assuring power and reliability.
"I am advised that your engineers have projected your water system to grow 3% per year. Under that assumption, DeKalb County would more than triple in 40 years. I hope they are correct; however, past history and the coverage you have of your potential service area cast doubts upon that projection. If it does not occur, the 50% increase in water rates proposed by your engineers will prove inadequate.
We can furnish DUD up to 2.0 million gallons per day for 20 years. We are willing and indeed anxious to negotiate a water purchase contract for the next 10 or 20 years, and believe it is in the best interest of both your ratepayers and those of the City of Smithville. We will be glad to continue to share the Best Tasting Water in the Upper Cumberland as judged by TAUD".
The proposed DUD 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."
Jon Foutch, DUD manager, told WJLE last May that the DeKalb Utility District is growing, adding more customers, and the utility wants its own water treatment plant in order to better control its future water supply expansion issues. Currently, the DUD purchases almost all of its water supply from the City of Smithville except for the Silver Point Community of DeKalb County. DUD buys water to serve that area from the City of Baxter.
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. Plus, he said the city and DUD could work together in times of crisis. "If something were to happen to the Smithville treatment plant or DUD's plant we could lean on each other. All we would have to do is turn on a few valves since we're already connected to each other. We could support each other," said Foutch.
The DUD already has 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 completed and in operation, according to Foutch. And 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.
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. 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.
However when it came time to build the water plant, the DUD apparently 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, the DUD decided instead to enter into negotiations with the City of Smithville for a new water rate. Some of the loan/grant funds were later used to make other improvements to the existing infrastructure.
