City Sets New Water Rate for DUD

December 12, 2013
Dwayne Page
Mayor and Aldermen

The City of Smithville will begin charging the DeKalb Utility District $5.00 per thousand gallons for the water it purchases beginning January 1.

The Mayor and Aldermen met in special session Thursday night at city hall to set a new rate for the DUD once the current contract expires December 31. The new rate of $5.00 per thousand gallons established for DUD is the same rate that city customers pay for water.

For the last decade, the DUD has been under contract with the city to purchase water at a rate which has increased by five cents per thousand gallons each year. The DUD currently pays $2.05 per thousand.

Proposals for a new deal have been presented by both sides recently but the parties could not reach an agreement.

In the latest proposal, DUD commissioners offered to enter into a new ten year contract with the city and pay $2.67 per thousand gallons for the first five years and $2.80 per thousand gallons for the remaining five years. But they are unwilling to give up plans to build a DUD water treatment plant and agree to minimum purchase amounts from the city for the next ten years.

The aldermen were not impressed with DUD's offer.

"I personally don't think it's reasonable at all. I don't think we would be loyal to our customers to consider something like this," said Alderman Josh Miller.

Several months ago the city hired Warren and Associates to do a water cost study. Their findings were that it cost the city $2.67 per thousand gallons to produce water. That's the same rate as the DUD proposed to pay in the first five years of a new contract with the city.

However, the city's financial consultant, Janice Plemmons-Jackson advised against locking in the rate for five years with costs likely to rise. "Every year your cost is going to continue to go up. To lock in one rate for five years, unless you're getting a high rate on the front end doesn't make sense," she said.

Jackson added that the results of Warren's cost study, done months ago, may already be out of date. "Those were probably 2012 numbers and we're already at the end of 2013 going into 2014. You have had some cost increases so the rate that was good at the time of the cost study is probably not the rate you're now spending to produce the water. That's an old number," she said.

Alderman Jason Murphy raised the possibility of setting the rate somewhere between $5.00 per thousand, which is what city customers pay, and $7.50 per thousand, which is the rate city customers who live outside the city pay for water. "This is how I feel. I'm a water customer. I don't have to agree to buy a minimum. I pay $5.00. I think that should be our bottom dollar. We don't charge anybody more than $7.50 so I don't think we should charge them (DUD) more than $7.50. In my opinion, I think we should be somewhere in that range so that we know we cover our costs," he said.

"I have had comments from lots of city customers saying they think it's unfair that we sell (DUD) at a price less than we provide to our own city customers. I understand the wholesale concept. In a wholesale situation you do sell cheaper. I understand that but a lot of our customers don't understand it or don't agree with it," said Alderman Shawn Jacobs.

Alderman Danny Washer made a motion to set the rate for DUD at $7.50 per thousand gallons. " They are not willing to work with us. Next year (expense of producing water) is going to cost more so we need to be prepared for it," he said.

"I think if we set this too high, we're not punishing DUD, we're punishing DUD's customers," said Alderman Murphy.

"I would hate for this board to be accused of trying to gouge anybody out of vindictiveness," added Alderman Jacobs.

"I don't disagree with $7.50 but I had rather drop it on down because I think what we'll do if we get it at $7.50, it's going to make it hard on a lot of people, older people in the county that uses water," said Mayor Jimmy Poss.

"I don't want to put a burden on them but we've got to look at the big picture. If everything (costs) wasn't going to go up and everything was going to stay the same, I'd be willing to come down (on the price)," said Alderman Washer.

Alderman Tim Stribling said he too thought the $7.50 rate was too much. "The citizens of Smithville have the financial responsibility of the water plant and we as a board represent those citizens. But my personal opinion is that charging $7.50 is too high for the volume that they're using. My opinion is that it shouldn't be more than what our inside customers pay which is $5.00 because of the volume they (DUD) do purchase," he said.

Alderman Murphy said he might be willing to go along with a discount for DUD if they would agree to minimum purchase amounts. "In my business, we'll come out and do a service for you at a certain rate but if you agree to do a set amount of services, we'll give you a discounted rate. I think this is no different really. If you want a $2.67 rate then guarantee me 24 million gallons a month. But I won't vote for anything that is going to cost the city money," he said.

"Where I came up with $5.00 is that is what city customers pay and they are not required to purchase a specific amount of water. That's what DUD wants (no minimum purchase requirement) so I think we should give them what they want. We could set it at $7.50. There are people who pay $7.50 so I think $5.00 is definitely not unreasonable. They (DUD) charge some customers $8.50 and are buying it at $2.05 per thousand gallons," added Alderman Murphy.

Alderman Washer, sensing no support for the $7.50 rate, withdrew his motion.

In a letter to City Attorney Vester Parsley, Jr., DUD's lawyer Dewey Branstetter wrote that a move by the city to charge $7.50 would be unrealistic for a wholesale customer such as DUD and suggested that it might be in violation of state law.

During Thursday night's special meeting, Parsley said state law does not dictate what the city can charge. "TCA (Tennessee Code Annotated) does say that the city and any distributor should make the rates reasonable but there is nothing in the code that says we have got to set a certain amount for them," said Parsley.

All five aldermen voted in favor of a motion to set the new DUD rate at $5.00 per thousand gallons.

The rate takes effect January 1 and will be re-evaluated by the mayor and aldermen next summer during budget preparations for the 2014-15 fiscal year, which begins July 1. "The rate will be established in the budget by ordinance and it can be re-evaluated with the new budget July 1. Instead of doing a contract, the rate may now be voted on each year by the board in the budget ordinance," said City Secretary-Treasurer Hunter Hendrixson.

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