DUD Claims City Not Providing "Full and Accurate Information" on Water Cost Study

February 18, 2013
Dwayne Page
DeKalb Utility District
City Hall

Officials of DeKalb Utility District are not happy with comments made during the last meeting of the Smithville Board of Mayor and Aldermen accusing the DUD of being unwilling to share in the cost of a water study with the city.

DUD officials, in a letter to City Attorney Vester Parsley, Jr., claim that he (City Attorney Parsley) and Hunter Hendrixson, the city secretary-treasurer, have not provided the city council with "full and accurate information" concerning the DUD's position on this matter.

The DUD letter, signed by Board Chairman Roger Turney and manager Jon Foutch, has also been sent to each alderman.

In the letter, DUD officials pointed out that a standard contract was sent by DUD to the City of Smithville on August 28, to initiate discussions regarding a new water purchase contract and that it was clearly spelled out that the parties (City and DUD) were to "agree" on an entity to perform a Cost of Service Study and that the entity "shall be unbiased as reasonably possible".

Furthermore, DUD officials claim the representatives of the entity the city has hired to perform the cost study is not an "unbiased" nor an "independent entity" in that "David Pine and Jerry Warren of Warren & Associates are expected to be called as expert witnesses in the Utility Management Review Board (DUD rate review) proceeding (April 4 in Smithville) and will be presenting evidence against the DUD on behalf of the City of Smithville"

During the last city council meeting on Monday, February 4, city officials said they were "disappointed" because DUD officials had stated in its contract proposal, that DUD would share in the expense of a study to determine how much it costs the city to produce water. The results of such a cost study will likely be used by the city to help establish new rates to be charged the DUD in any new water purchase agreement. In a letter to city officials on January 29, manager Foutch wrote that the DUD was not agreeable to share in the expense of a cost study performed by Warren & Associates and proposed using instead the Jackson Thornton firm. City secretary-treasurer Hunter Hendrixson, during the February 4 meeting, said the study by Warren & Associates was already underway. The cost to perform the study is $7,500.

On February 6, City attorney Parsley sent a letter to Foutch expressing the city's displeasure with the DUD decision not to share in the cost of the water study. In the letter, Parsley wrote, " The City of Smithville was very disappointed in your response to the City hiring Warren & Associates to conduct the cost study for the City of Smithville. Your previous letters had not set out any particular firms or conditions for hiring someone to do the cost study. The City was under the impression that we were going to share equally the expense of the cost study. Hunter (Hendrixson) had previously attempted to contact the Jackson Thornton firm that you mentioned in your letter. However, they did not return his call until after Warren & Associates had been retained. The City feels that DUD has at least a moral obligation to pay one-half of the $7,500 cost for Warren & Associates to perform the cost study, However, since Warren & Associates has already started the work the City will fulfill its obligation to pay them as contracted," wrote Parsley.

The following is the full text of DUD's letter in response to Parsley, signed by Turney and Foutch:

"On behalf of the DeKalb Utility District, I (Foutch) wish to respond to your letter of February 6, 2013. The "disappointment" of the City of Smithville was no doubt created by the misinformation and lack of information that you (Parsley) and Hunter Hendrixson have shared or failed to share with the city council. It is clearly evident from your letter, as well as the relentless information in the media regarding the efforts on a proposed contract, that the city council is not receiving full and accurate information. Therefore, I am providing each alderman a copy of this letter so that there can be a full understanding of what has transpired in this process.

For your benefit and the benefit of the recipients of this letter, I wish to point out the following:

1. On August 28, 2012, a rather standard contract was sent by DUD to the City of Smithville, to initiate discussions regarding a water purchase contract. Included in that contract, specifically on page 4 and 5, it was clearly spelled out that the parties were to agree on an entity to perform a Cost of Service Study and that the entity shall be unbiased as reasonably possible"

2. On January 3, 2013, after waiting over four months for some type of information on whether the proposed contract was agreeable and whether a cost study was going to be done, a letter was sent by the Chairman of DUD addressing this issue once again. In that letter, a copy of which was mailed to all aldermen, it was clearly spelled out that DUD is willing to share one-half of the cost of an "independent entity" to conduct a cost study of the city's water production operation. It was referenced in that letter that as of January 3, 2013, that DUD had received no input as to whether that offer was acceptable or whether any effort was being made to have a cost study accomplished.

3. On January 7, 2013, I (Foutch) understood from comments made at the council meeting that a cost study was going to be pursued and that Mr. Hendrixson would contact DUD accordingly. On January 24, 2013 after hearing nothing about the study, proposed entity or cost, I called Mr.(Hunter) Hendrixson to ask about the progress of a study. On that same date, he faxed to me one sheet of paper that included the business card information for Jerry Warren and David Pine of Warren & Associates. I told Mr. Hendrixson in this phone conversation that DUD would have to be agreeable with the entity to perform the cost study if they were going to pay one-half of the cost. Mr. Hendrixson agreed and provided no opposition.

4. On January 25, 2013, after trying to find information on Warren & Associates, I (Foutch) called Mr. Hendrixson and told him that DUD would not be willing to share in the expense of Warren & Associates due to us not having any information regarding their expertise and credentials in performing cost studies. At no time did Mr. Hendrixson provide me with any credential-type information on this entity and clearly no information like was discussed at the city council meeting on February 4, 2013.

5. On January 28, 2013, Mr. Hendrixson called wanting me to respond by letter regarding the denial of DUD in not agreeing to share the cost of the work of Warren & Associates. At that time, Mr. Hendrixson stated that the city had not yet made up their mind on what they were going to do regarding this study but that he would provide our letter to the city council and be back in touch on their response. Again, no information at all was provided regarding Warren & Associates. Pursuant to Mr. Hendrixson's request, I (Foutch) provided a letter setting out DUD's position on the use of Warren & Associates and proposing other experienced entities that would be agreeable for the cost study work.

6. On February 1, 2013, in the contested case matter pending before the Utility Management Review Board, which the City of Smithville has requested to be allowed to intervene and present evidence at that hearing, Mr. Hendrixson, on behalf of the City of Smithville, signed written interrogatories, which disclosed David Pine and Jerry Warren of Warren & Associates as being persons expected to be called as expert witnesses in the UMRB proceeding and would be presenting evidence on behalf of the City of Smithville. This information was not discussed at the council meeting of February 4, when the credentials of Warren & Associates were questioned.

Clearly with Warren & Associates being the paid expert witnesses of the City of Smithville, they would not be an "unbiased" and "independent entity" as referenced earlier in the proposed contract. Evidently you (Parsley) and Mr. Hendrixson failed to advise the council on what experts had been paid on behalf of the city to attempt to defeat the efforts of DUD on the construction of a water treatment plant, but instead tried to get DUD to help fund such an effort. You and Mr. Hendrixson, while touting the credentials of this entity on February 4, for some reason completely failed to mention the hiring of them as experts in the pending matter.

7. On February 4, 2013, when the council met I (Foutch) heard information regarding Warren & Associates for the first time, and information that was clearly contrary to what I had been earlier told. It appeared to me from statements made by you (Parsley), Mr. Hendrixson and the mayor, that Warren & Associates had already started working on the cost study and were "already underway" and had been working on the study for at least three weeks. Again, no mention of this was made to me in my earlier mentioned phone conversations with Mr. Hendrixson. There was also much information shared at the council meeting as pertains to the experience and credentials of Warren & Associates but this had never been shared with DUD. You made many strong assertions that at no time did DUD ever place any requirements on their agreement to share the cost of a study. You evidently did not wish to share with them the proposed contract terms mentioned above or the correspondence regarding the required independence of such a study," wrote DUD officials.

The DUD letter to city officials further stated, "It is very troubling to hear the inaccurate information coming from the council meetings and from representatives of the city regarding this issue, but even more so when it is known that the information will be shared with the public via media outlets in a way that provides false or incomplete information. It has always been specifically pointed out both in the proposed contract and in follow up letters that DUD would share in an independent unbiased study and that continues to be DUD's position. As referenced herein, Warren & Associates does not meet that criteria and DUD respectfully cannot agree to use them."

"While it is disappointing that the City of Smithville has chosen to spend tens of thousands of dollars on public relation efforts and attorneys to defeat the business decisions of the DUD board on "its" future plan for "its" customers, it would be nice if full and complete information was provided to those in authority at the city who must make the final decisions on the best course of action for its citizens," wrote DUD officials.

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