Legal action may be taken if Newton does not correct rates, IRUA letter suggests

The ongoing dispute between the City of Newton and Iowa Regional Utilities Association continues to take on water.

IRUA on April 19 provided Newton News with a formal statement regarding the increased water rates that were approved by the Newton City Council one month ago. The March 18 decision was made all the more controversial when council waived the second and third readings and adopted the changes on the spot.

However, officials of the rural utility company said they had only learned of the decision when Newton News reached out for comment on March 21. Ensuing news coverage alerted IRUA customers, who worried their rates would increase so significantly that some have contemplated establishing their own water wells.

In the letter sent to Newton News from IRUA, it is suggested the company may take legal action against the city. When Newton News asked for clarification, CEO Matt Mahler said IRUA hopes that is not necessary but is prepared to do so if it is the only way to arrive at a rate that complies with the agreement.

Here is the letter in its entirety:

Re: Newton’s Water Rate Increase to IRUA (April 19, 2024)

For the past year the City of Newton has threatened to violate a more than 40-year-old agreement between its water utility and IRUA by levying an unprecedented rate increase against the cost of water IRUA purchases. In March, Newton’s City Council aggressively escalated the situation by adopting new rates for IRUA without notice or discussion. The new rates would result in a 172% to 793% increase in Newton water purchase costs for IRUA.

Since its decision, Newton has issued statements with cherry picked facts and false representations (IRUA never refused to meet with the city). The city’s statements are misleading and only acknowledge the “cheaper” 172% rate increase adopted by the city. Newton is either ignoring or intentionally drawing attention away from the 793% increase pricing it did - in fact - adopt. The city is attempting to divert attention by saying in its statements that IRUA will “most likely” pay the lesser rate, though it is not clear how they arrive at that conclusion.

The fact is, IRUA needs to purchase 93 million gallons of water per month from Newton to be granted the “less expensive” 172% increase water rate. Purchasing 93 million gallons in a month is a feat IRUA’s water system has only accomplished 1 out of every 3 months over the past three years. How the city believes it can simultaneously double (or octuple) its water pricing to IRUA and expect water purchased by IRUA to dramatically increase is beyond reason, and making statements that suggest the 793% increase rate is a non- factor is misleading as historical facts show the 793% rate would have been enforced a majority of the months for the past three years. Looking back, if the recently adopted rates were applied to IRUA’s past 3 years of usage the effective rate during that time would have been $8.17 per 1,000 gallons (a 710% increase).

The city is also attempting to downplay the impact that their decision has on IRUA’s customers. In a letter dated April 1, 2024, the city’s Mayor said: “...water cost itself is a small portion of the amount charged by IRUA.” How the city believes it has the information or authority to make this unfounded statement is incomprehensible. Since the Mayor’s statement, Newton Daily News has also taken the liberty to develop financial forecasts for the impact on IRUA customers. I would again like to set the record straight with actual facts:

If IRUA is forced to absorb the “lesser” rate increase of 172% adopted by Newton – all 15,000 + of IRUA’s retail customers are looking at an immediate 25% rate increase. If IRUA is forced to pay the city’s punishing “higher” rate then IRUA’s rates to its customers will be forced to increase 100%. Potentially doubling IRUA’s water rates is not the result of the increase of a “small portion” expense item in our budget.

With rates increasing that much, IRUA would expect water sales to drop as customers look to cut back on water usage or go back on wells in order to save money. The reduced water usage will exacerbate IRUA’s ability to clear the city’s 93 million gallon monthly purchase hurdle required to reach the 172% rate the city thinks IRUA will “most likely” meet.

For those concerned about IRUA’s rate falling below the rate paid by Newton’s residents, this was a well understood concept by the architects of the contract between Newton and IRUA based in the principles of wholesale purchasing. The concept and value of buying in bulk is not new. The idea of economy of scale provided by a centralized mass production facility has been proven going back to Henry Ford. With IRUA purchasing approximately three-quarters of the water produced by the City of Newton it is more than appropriate for IRUA purchasing at a reduced rate that accurately reflects the cost of service to IRUA – and this is before accounting for the millions of dollars in infrastructure IRUA has built with its own cash that benefits Newton’s water system and residents.

IRUA hears and appreciates the outcry from the many customers who have voiced concern over the city’s rate increase, and wants its customers to know that the Board of Directors is more concerned about Newton’s unprecedented actions than its customers are. At this point, IRUA has tried to work with the city to collaborate on a rate increase that is in conformance with the purchase agreement. (In fact, the only party that has ever refused to meet is the city – who has insisted there is no point in IRUA and the city getting together until August later this year – after their rates have gone into effect!)

IRUA understands very well it is in its interest for the City of Newton to have an appropriately funded and managed water supply. Part of the responsibility Newton bears by managing the water supply and system is managing rates appropriately in a manner that complies the 40-year agreement.

IRUA will now exhaust all legal remedies available to see that the City of Newton does that.

Sincerely,

Iowa Regional Utilities Association

Ronald Dunsbergen

President