Editor’s note: This is the fifth in a series of stories highlighting discussions during a recent Danville City Commission/management team retreat where staff met to outline goals and objectives for the coming year.

Earl Coffey, municipal utility engineer, said he will reach out to the new Perryville and Junction City councils in the new year to help them understand how the water and sewer rates are assessed. He and other city officials talked at length about the topic during the recent management team retreat.

“We’re not a for-profit, not set up like Kentucky American to derive a profit,” Coffey said. He reiterated what’s been discussed during some commission meetings, that much of the confusion about what’s been perceived as a huge increase in water is really two separate rates, water and sewer, which the City of Danville provides for both Perryville and Junction City.

“We have an equitable rate that’s cost-for-service based. So you don’t have users of the system supplementing other users,” Coffey said.

He said it’s important for those cities to realize there are two separate rates — water rates and sewer rates — for two separate utilities and functions.

Danville entered into agreements with Perryville in 2004, then Junction in 2005, to acquire their utilities, under which ratepayers in those two cities would pay the same, “penny for penny. Precisely the same rate,” Coffey said. And any time their rates were raised, the rate was also raised inside of Danville.

“All of the water rates have changed simultaneously, penny for penny every time they’ve changed; that’s part of the agreement,” he said. However, there is a surcharge assessed to deliver out of city; for instance, if 1,000 gallons of water in Danville is $10, the county rate is $22.

Coffey said the multiplier for that surcharge, at first, was 2.2, based on the cost to serve the county. “Today, that ratio is half that. Rather than being 2.2, it’s 1.1, so our rates have gotten closer to theirs, as a result of that policy being implemented,” he said.

Coffey said when Danville took Junction on as sanitary sewer customers, they were on a tap-on ban with no new collections allowed. The first five to seven years of work was to clean up septic system areas, for example, that was resulting in poor quality of the system. The city commission added service to the Airport Road corridor; it eliminated the bypasses inside the city (eliminating three pump stations) and built the Balls Branch pump station to handle that addition.

“So there’s been a lot of money spent in Junction City to benefit Junction City,” Coffey said. “Without their sewer rate being artificially adjusted.”

He said the important thing to realize with the sanitary sewer rate and the cost to serve basis is that Junction City and Perryville had their own debts when they were acquired.

“The City of Danville can’t absorb their debt and our debt, so those folks still are paying their own debt service. And will … pay their own way. Because that’s what the standard is for sewer service.” He said there’s a reason Kentucky American Water doesn’t actively pursue sanitary sewer system as a profit.

“Now, that is more impactful in Perryville because you have a limited group of customers that have sewer. You’ve acquired like 1,500 water customers, and only 500 or less have access to sanitary sewer service in Perryville … Those folks in Perryville, they are paying all the expenses to operate the wastewater plant in Perryville that they are the only beneficiaries of its existence,” Coffey said. “You can’t take money from sewer users in Danville, or Junction City, and pay the operation it cost to operate the Perryville wastewater plant.”

Coffey said people also misunderstand the reason the recent rate change occured. When Danville took over the Perryville system, the cost was about $95,000 a year, and since then it’s gone up to $165,000 — roughly a $70,000 increase.

“The increase in expenses when we took them over, the operating budget for the power that first year was like $3,000. Now it’s like $53,000,” Coffey said. He said of the $70,000 increase, $50,000 of it is power cost resulting from Kentucky Utilities rate increases.

Commissioner Denise Terry asked, “And that goes directly to KU, correct?”

“Ultimately, right. That is the impact of capital construction necessary for KU to maintain their business. That’s power cost,” Coffey said. “That’s not anything anyone has control over. But at the same time, the ratepayers in the Danville sewer system can’t pay it on (Perrville’s) behalf.”

Coffey said, “So what we have to look at is ways in the future so we don’t have capital projects that could be crushing for those 500 or so users. Also, focusing on operating expenses that are in our control. Not just strictly fixed or power costs. We have to manage these goals.”

Coffey said the situation has been widely misrepresented — whether intentionally or not.

“There has been extensive misrepresentation of the obligations of all the ratepayers by a broad cast of characters, including at the commission meetings,” Coffey said. He said as the city has audited accounts, once ratepayers have contacted them expressing concern, they’ve found water and sewer, combined, is not even as high as it is in the Parksville district.

“And so the important thing for us, if citizens have a problem with it, finance has an opportunity to investigate it, make sure it’s been properly determined and calculated, and how they can impact their costs.” He said helping them understand water conservation not only helps their bills, but the community as a whole over time.

Commissioner J.H Atkins asked when was the City of Danville’s water rates last increased. Coffey said it was increased 43 percent in 2012, before the construction of the new water plant began. Sewer rates were increased across the board in 2017.

Coffey also gave an update of storm water and utility fund projects:

• Water treatment plant Lexington Avenue park — All materials have been received from the vendor and will be installed as weather allows.

• Various stormwater projects — Coffey said a couple of projects “are being held up for legal reasons.” The major one, in Streamland, is still in process, with a consultant doing work based on comments gathered from an informational meeting held in August. The city is in the process of scheduling a follow-up meeting with residents to review findings. “If a project is recommended, we hope this process will guide us so that both engineering needs and community expectations are met that are practical on both sides,” he said.

• Corporate Drive/Perryville Road water line upgrade — The project is on track; Coffey said the difficulty in this particular work is there’s Rural Development money being used, which has to be used outside of corporate limits, as well as EDA grant monies, required to be used to help industry. “Each one has a set amount of money, and we developed the scope of work based on that.” The replacement of standpipes on the east side of Perryville weren’t included in that, however, nor the replacement of the water tower near Tuggle Road (no site has been selected for this yet). “We’ll be doing this over the next few weeks. Hopefully, we can have a site to construct that elevated tank on.”

Commissioner Kevin Caudill asked, “If we do the new work in Perryville, with the standpipes, will that affect their rates?” Coffey said not yet; the price was programmed into the existing rates.

“We’ll do another rate study soon, our goal is to begin talking to the consultant who did the last one. We’ll have to see how that looks. The cost side of this project was programmed into the last rate analysis, so hopefully it won’t impact any rates, since it was sufficiently planned.”

• Wastewater plant master study — Phase I (compliance) will occur soon, but Coffey said equipment is due to be replaced; the last upgrade was done in the late ‘90s.

City Manager Ron Scott said, “We will be spending a lot of money to upgrade and maintain our system, due to increased regulatory process the state is imposing on all systems.”

Coffey said the state regulated stormwater in ‘05-’07, then after that, the EPA enacted new requirements, which will “guide improvements in the future on water quality and hold us accountable.”

He said the requirements mean the city will have to be “programmatic,” in other words, it can’t “just sit there and wait until you can afford” to make upgrades. An example is fines have been increased in cases of overflows, at $10,000 or more.

“Clarks Run and Spears Creek Watershed, both have been rebuilt. Knob Lick is the next one. That state will no longer allow you to sit there until you can afford it,” Coffey said. “If you have to make rate decisions to fund that, that’s what you’ll have to do. They’ve taken steps through the permit process to ensure they hold you accountable.”