City Opposes DUD Plans to Build its Own Water Treatment Plant

May 16, 2011
Dwayne Page

The DeKalb Utility District has resurrected a proposal 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.

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. That could mean increases in water rates to city customers as well as those served by DUD, according to Mayor Taft 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 $1.95 cents 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, 2009 was $541,286.

In order to build this proposed $10 million water plant, the DUD needs financial assistance and is seeking help through USDA Rural Development's loan/grant program. The aldermen, apparently in an effort to derail DUD's funding for this project, voted Monday night to send a letter, written by Mayor Hendrixson, to the USDA stating the city's opposition.

In the letter to Bobby M. Goode, State Director of USDA Rural Development, Mayor Hendrixson wrote on behalf of the City of Smithville " 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," wrote Mayor Hendrixson.

The letter goes on to state that "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," wrote Mayor Hendrixson.

"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," according to Mayor Hendrixson's letter.

"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," concluded Mayor Hendrixson.

Last week, a "Notice of the Availability of an Environmental Assessment" was published in one of the local newspapers stating 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."

Jon Foutch, DUD manager, told WJLE Monday 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 at $6.50 per thousand gallons.

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.

Foutch also stressed 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. We just feel it's the best business decision for DUD," 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.

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. However, without the grant funds, the 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. 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.

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