This letter is written on behalf of the Gas City Council at their request to provide its viewpoint regarding the Water Purchase Agreement it has with the City of Iola. Recently the City of Iola gave notice it is terminating the contract at the end of the agreement’s term in 2031 because Gas would not agree to the last and all future rate increases. This is the culmination of months of dialogue between the Iola and Gas city councils. Ultimately each city council made the decision it felt was in its citizens’ best interests, which was what each council is elected to do.
The Gas City Council feels the current agreement is fair because Gas considers itself to be a wholesale customer, not a residential customer. Iola incurs no line maintenance, meter maintenance, shutoff issues, bill collection or other normal expenses and issues associated with residential customers. Iola receives the benefit of selling water to multiple residential customers (i.e. citizens of Gas) with only one connection to worry about. Further, Gas is responsible for the payment of all water purchased from Iola, regardless if a Gas resident pays his or her water bill. Iola does not incur any of this risk. The more water Iola sells to wholesale customers such as Gas, the more it can spread its fixed costs out on a per unit basis. Many cities sell water to wholesale customers at a different rate than to its residential customers for these very reasons.
One of the main reasons provided by Iola for the last rate increase was dwindling water utility reserves due to transfers to the general fund. Gas does not consider transfer payments from the water fund to Iola’s general fund a valid reason for Gas to agree to the rate increase. General fund expenditures are for typical day to day operations of a city, such as police, fire, streets, public works, etc. Gas understands that profits from a utility fund are a great way to supplement the general fund and help keep property taxes low for a city’s residents. If Iola can make money selling water, it is smart to do this. However, Gas does not feel it can justify to its citizens an increase in water rates to help supplement Iola’s general fund to keep property taxes low for Iola residents. Ultimately, Iola’s general fund expenditures are the responsibility of Iola’s residents.
Gas hopes it can continue its good working relationship with Iola despite the disagreement on this particular issue. Neither council is acting in bad faith, only looking out for its citizens. It was only prudent for Iola to terminate this agreement at the end of its term in 2031. Otherwise the agreement would automatically renew for another 30 years with only six more rate increases allowed during that time frame. On the other hand, why should Gas agree to rate increases on behalf of its citizens when they have no legal obligation to do so? Each side is simply doing what is best for its constituents. Based on current usage, over the next 15 years, the City of Gas will purchase approximately $1,200,000 in water from Iola, making Gas one of, if not the largest, water customers Iola has. Both sides will have plenty of incentive to reach a new agreement that is good for both parties. The Gas City Council has been very thorough in investigating both the short term and long term ramifications of its decision. The Gas City Council is very confident a viable and economical solution will be reached prior to the contract expiring in 2031 with no interruption in water service.
Gas city attorney