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28 percent water rate hike in Unicoi brings controversy

May 15th, 2014 10:19 am by Brad Hicks

28 percent water rate hike in Unicoi brings controversy

UNICOI — A notice was recently sent to Unicoi Water Utility District customers advising them of an upcoming rate increase, but two former district commissioners contend this letter is misleading, and the stated reason for the increase is inaccurate.

A letter signed by district Board Chairman John Mosley and Utility Manager Lee Bennett went out to district customers over the weekend. This letter said the utility borrowed $2,537,473 in 2010 in bond-issue funds to drill two wells in hopes of the utility finding its own water source. However, these wells proved to be unproductive and the utility is now paying back the loan, the letter said.

The letter said the district has “no alternative” but to raise water rates, with the new rate going into effect May 1. Customers will notice the change in their water bill when bills arrive in June, the letter said.

“We have not had a raise in water rates since October 2012, and regret that we have to raise rates at this time,” the letter said. “The utility has suffered a significant loss in revenue over the expenses for the last 2-3 years due to the Bond Issue Funding. When losses happen, the state of Tennessee Comptroller’s Office gets involved, and we were forced to raise water rates (28 percent). We are controlled by the state of Tennessee and must abide by their rules and regulations.”

But David Rogers and Jeff Linville, commissioners on the district’s board at the time of the bond issue, have written a letter of their own to address what they perceive as “inaccuracies” in the letter to utility customers. Linville provided a copy of this letter to the Press on Tuesday afternoon. Rogers left the board in January 2011, and Linville, a current town of Unicoi alderman, left in January 2012.

In their statement, Rogers and Linville say that only a portion of the more than $2.5 million bond issue was used for drilling the exploratory wells, not the entire amount, as inferred in the letter sent to customers. Rogers and Linville said only $256,587 — or around 10 percent — of the entire bond issue was utilized in drilling the wells.

“The bond payments average around $184,000 per year with 10 percent, or $18,400, attributable to the wells,” Rogers and Linville’s letter said. “This is less than 25 cents per 1,000 gallons of water sold.”

Rogers and Linville said around $532,000 of the bond issue was used to pay off previous bonds, relieving the utility of approximately $46,000. The former commissioners said this money was to be used to offset some payment on the new bond. They also state in their letter that around $500,000 of the $2.5 million bond was used to purchase remote-reading water meters in an effort to reduce the labor and inaccuracies involved in meter reading. One position was eliminated due to this purchase, and the utility saved around $50,000 per year in wages, payroll taxes and health insurance costs.

“This savings could also be used to offset the bond payments,” Rogers and Linville said in their letter.

More than $1 million of the bond was used for a new control tank on White Cove Road, waterline improvements and new vehicles, Rogers and Linville said.

“The tank was needed to equalize pressure in the lines and provide storage as required by law. The utility was fast approaching capacity based on the health department inspection,” the letter said.

Rogers and Linville also state that at the time of the bond issue, the utility was negotiating a new contract with Erwin Utilities for the purchase of water. The previous contract required the Unicoi district to pay a 50 percent surcharge to purchase water from Erwin Utilities, meaning whatever the rate for an Erwin Utilities customer was inside the city limits, the Unicoi district would be charged this rate plus 50 percent.

Rogers and Linville said that after officials with Erwin Utilities received word of the proposed drilling site, they attended the Unicoi utility’s next meeting with a contract to sell water at Erwin customer rates without the surcharge.

“In future years this will save the utility in excess of $100,000 per year,” Rogers and Linville said. “The previous rate charged by the Unicoi Water Utility District was $4.50 per 1,000 gallons. It is now $7.25. In our calculations, that is a 61 percent increase. Based on 2013 sales of 94,629,000 gallons, then each 25 cents of rate increase produces $23,657 in additional annual revenue.

“The rate increase of $2.75 will produce an additional revenue of $260,227. Also, the increase in the minimum charge will produce at least $85,000 in additional annual revenue. To blame the rate increase on $256,587 to be paid back over a period of 30 years is very misleading.”

Instead, Rogers and Linville attribute the announced rate increase to typical cost increases for items such as labor and gasoline, but also “bad budgeting” on the part of current district commissioners.

“Since we left office, the utility has incurred losses in excess of $100,000 per year,” Rogers’ and Linville’s letter said. “Less than $180,000, by any stretch of imagination, can be attributed to the wells. In 2011, operating expenses exceeded revenues by $69,372. In 2012, it was $18,084. In 2013, it was $23,115. These losses are before interest and depreciation are deducted. Each year, they budgeted a profit and each year they had huge losses.

“In short, the drilling of the wells was a very productive effort. It was used as a bargaining tool to eliminate the 50 percent surcharge for the next 20 years,” Rogers and Linville said. “Any increase in rates is solely due to the decisions of the current officers, increases in labor, insurance, materials, gasoline and the inability to accurately budget and adhere to the budgets.”

Both Rogers and Linville said the information on the bond is contained in the state’s audit of the district.

“The information in the audit report is the information needs to be looked into further,” Rogers said.

“We worked to make this utility one of the best in the area,” Linville said Tuesday. “The water loss is in line with what the state says it should be a couple of years from now. Everybody else says it’s impossible, but we’ve already met the goal. ... We’ve worked hard.”

Mosley said Wednesday afternoon that it is true that only a portion of the bond issue taken out in 2010 was used toward the drilling of the wells. When the wells did not pan out, he said the utility district had to use the bond issue funding for infrastructure items for the utility, as it could not be returned.

“If we had hit water, the rest of it would have gone for the water system that we would have had to build and it all would have been spent on the well system,” he said. “Since we didn’t hit any water, we had to spend it on other things for the utility. Mr. Linville should know. He was present. We could not pay it back, we could not give it back.”

Mosley also said the wells were not used as a “bargaining tool” to eliminate the surcharge. Mosley said officials with the Unicoi district first approached Erwin Utilities when its contract with Erwin Utilities was set to expire.

“All we asked for was to be charged the same as the Erwin city residents, who were charged a lower rate than we were,” Mosley said. “Erwin Utilities would not do that, so we went ahead and dug two wells but come up with nothing. We went back to the table with Erwin Utilities. They agreed to hold our price until they brought the city of Erwin up to what we were being charged, and at that time, I decided not to dig the third well and voted ‘no.’ ”

He also reiterated that the repayment of the bond issue is the only reason for the increase.

“We have to pay back the $184,000, and we’ve been eating it for the last four years, paying it out of our pocket,” he said. “We’ve been showing in the red for the last four years, trying to hold costs down, and the state come in and mandated that we raise it a minimum of 28 percent or we would face going to Nashville and the state would take over the water department, and it would go from there.”

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