Crossville Chronicle, Crossville, TN

November 20, 2013

TSUD votes to return treatment plant

By Heather Mullinix
Assistant editor

CROSSVILLE — The Tansi Sewer Utility District board agreed Tuesday not to fight a move to reclaim the sewer treatment facility for the bankrupt Tansi Waste Management System.

The vote came as the board learned the state would require rates to increase 96 percent to avoid becoming a financially distressed utility.

“If we fight it and we do win, and we’ve had several people tell us we have no chance we’d win, we’d be out of money, probably in the hole, and facing a 96 percent rate increase for our customers,” said Trey Kerley, board president.

That would increase residential sewer rates to almost $100 a month and the Lake Tansi POA, one of the primary customers of the system, would be looking at a bill of almost $70,000 a year.

“I don’t see that being feasible for the public or being fair for them,” Kerley said.

TSUD showed an operating loss in the last two annual audits. Under state law, the utility management review board of the Tennessee Comptroller has the authority to set rates for public utility districts under those circumstances, to ensure the utility is not distressed.

Kerley explained the district had been served with notice on Oct. 18. Bankruptcy Trustee John McLemore intended to recoup the treatment facility in federal bankruptcy court.

“It basically says we want the plant and we want you to give it back,” Kerley said. “That’s where we’re sitting at.”

Virgil Ferguson, board vice president, explained the trustee claims the transfer of the asset to TSUD was fraudulent because it was not made with adequate consideration.

Ferguson said, “We have a bill of sale that says we paid $10 and other valuable consideration. We didn’t fraudulently obtain those assets.”

Robert Ray, who was appointed to fill a vacancy on the TSUD board this past week, said, he wanted to ensure customers were protected and service continues, regardless of who operates the plant.

“I want to do whatever we can do to protect the customers so they’re not left high and dry,” Ray said.

Ferguson said he was not in favor of fighting the lawsuit.

TSUD attorney Randal Boston said state law does not allow for turning sewer service off to a residence, so the bankruptcy trustee would have to operate the system and serve the seven residential customers, the POA office and amenities and the RCI timeshare facilities with sewer service. The system will likely be put up for auction in the near future, but the purchaser would also have to provide service to those customers.

“I feel the people would be taken care of, and I hope to God so,” Kerley said. “I think that’s been the mind of the board to make sure the people are taken care of and not taken advantage of.”

Mary Aggers, resident of Lake Tansi, thanked the board for their service. “I know you tried hard.”

The sewer treatment facility is currently permitted to treat and discharge up to 50,000 gallons of wastewater a day. According to October data, TSUD had an average use of 33,000 gallons a day and a peak use of 46,000 gallons a day. Effluent is treated with a membrane bioreactor and discharged into Lake Hiawatha. The Lake Tansi POA uses the lake water for golf course irrigation.

Ferguson said, “That plant can run by itself. And it does. Our plant operator goes over there once a day, every day. During bad weather, he’ll go as much as he needs to.”

He added the treatment plant was in good shape and should be able to continue for some time without much updating. Kerley added Julie Johnson, administrative assistant, was a treasure of information about the system, it’s customers and operations.

“If anybody is interested in the plant and does purchase it, they would be crazy not to want to look at Julie to work with it, if she even wants to,” Kerley said.

The board did not know when the transfer would take place.

It was unclear if another entity would require a 96 percent rate increase to operate the sewer system, as it might not face the same regulatory oversight of public utilities.

“What’s making us financially distressed is the depreciation on the plant and the infrastructure. If we owned that plant outright, we’d be OK,” Ferguson said. “We’re generating enough income to keep our head above water.”

Also, the operating permit is not transferable to a new buyer and a new permit would be necessary. While the residential customers currently receiving service would likely be grandfathered, TSUD board members did not believe the state would allow further residential customers on to the system if the treatment plant was no longer operated by a public utility.

Kerley moved not to fight the asset recovery.

Ferguson said, “I say the sooner the better. Let’s do it.”

Kerley agreed to add that provision to his motion, which was supported by Ferguson. It was approved with all three in favor.

Boston said, “I think you’ve handled it as best you could. It’s just you gentlemen are between a rock and a hard place. You just don’t have many directions to go.”