Mayor and Aldermen Asked Why Sell Water to DUD at Below Cost?

As city officials ponder whether to appeal the Utility Management Review Board’s recent dismissal of a DUD ratepayers petition over a proposed water treatment plant, two concerned city residents addressed the mayor and aldermen Monday night inquiring why the city desires to continue selling water to the DUD at below cost.
The DUD has a water purchase agreement with the city that went into effect almost ten years ago and is set to expire in January 2014. Under the contract, the city agrees to sell water to the DUD at a rate to increase by five cents per thousand gallons each year. The rate is currently at $2.05 per thousand gallons.
A recent study by Warren and Associates, paid for by the city, revealed that the actual cost for Smithville to produce water is $2.67 per thousand gallons. During the last meeting of the mayor and aldermen two weeks ago, city officials discussed offering DUD a new ten year deal which would include selling them water at $2.20 per thousand gallons for the first five years of the contract and raising it to $2.40 per thousand gallons for the last five years.
Waniford Cantrell, concerned citizen and former Smithville Mayor, asked why the city would not want to charge the DUD new water rates based on the water cost study. “I am thoroughly confused over our water operation. At a public hearing in 2010 over the city budget, water rates went up 43% for Smithville and they went up nine percent for the utility district. I made a comment at the time that we were possibly selling water cheaper than what it was costing to produce. At the time I recommended that we hire a cost accountant to determine the cost to produce a gallon of water. At the time (former) Mayor (Taft) Hendrixson relayed a comment to me from our financial consultant that I flat didn’t know what I was talking about. Now, some three years later we find that we were in fact selling water cheaper than what it was costing us to produce it. In fact, according to the Warren study we were selling water 67 cents cheaper than what it costs to produce. That’s 62% since January. Since we raised them a nickel. But using the Warren study figures, we were roughly losing $200,000 a year. How can we sell water to the utility district at below cost and profit from them? I don’t understand the big problem in losing them (DUD) as a customer. I think somebody (with the city) doesn’t know the difference probably between a profit/loss and cash flow,” said Cantrell
Faye Sandosky appealed to the mayor and aldermen to adjust the current contract with DUD to bring the rate in line with the actual water cost to the city. “As a citizen in the city, now that we know what the cost of producing our water is and that we citizens are subsidizing DUD’s rate, which is below what we are paying to produce the water and its my understanding that the contract we have with DUD is that they will continue to pay this underproduction cost until the new contract is renegotiated or in place in January. So that leaves us from April to January that this current underpayment contract is in place. Again, we the citizens are the ones that are absorbing that cost. I suggest that this board (city council) consider amending DUD’s contract so that they at least paying as much as it costs us, the city to produce the water. I believe the citizens should not be subsidizing DUD’s water costs. I would like to see that addressed and I would like to know your decision on it. Either yes you can. No you can’t. Yes we will. No we won’t. And if you won’t then I think we citizens deserve to know why,” said Sandosky.
Alderman Gayla Hendrix assured Cantrell and Sandosky that the city would give a proper response to their concerns at the appropriate time. “I don’t think I have enough information to answer you tonight but I would like for us to get together and come up with an answer and be able to present something to you at the next meeting. I don’t know enough about water costs to know the answers to that but I know there is a lot more factored into it. That’s why we probably need to discuss it and come back with a collaborative response. Just so that you’re aware that we’re not just sticking our heads in the sand, we (mayor and aldermen) have had an attorney/client meeting regarding the (recent UMRB) hearing. Obviously we can’t discuss those issues at this time but we will try to come up with some resolutions for you” said Alderman Hendrix.