September 24, 2007
Honorable John D. Douglas
Mayor, Town of Cumberland Gap
P.O. Box 78
Cumberland Gap, TN 37724
Dear Mayor Douglas:
At the town’s request, I visited on September 14th and inspected water maps and
toured a proposed service area for new water service within the town. I understand that:

The Town of Cumberland Gap buys water from Lincoln Memorial University
(LMU) at the following rates: first 2,000 gals @ $12.54; next 3,000 gals @
$4.59/1,000 gals. all over 5,000 gals. @ $3.57/1,000 gals.

The town resells water to its connections at the following rates: first 3,000 gals.
@ $18.00; next 7,000 gals. @$4.50/1,000 gals. all over 10,000 gals. @
$5.25/1,000 gals.

The town’s distribution system provides water service to all connections within
the corporate limits except for an area which is served by Arthur-Shawanee
Utility District. The area served by the utility district has a large user –
apartments owned by LMU, a privately owned service station and perhaps one or
two other small businesses. The apartment complex contains 127 units. LMU
plans to build an additional 120 unit apartment complex nearby. LMU has asked
the town to provide water service to its apartments.

Last month, about 96 of LMU’s apartment units were occupied and the total usage
was 196,000 gals.

Sewage from the apartments (and other connections within corporate limits) flows
to the town’s sewage treatment plant.

Arthur-Shawanee Utility District’s water rates are: first 2,000 gals @ $15.56;
next 3,000 gals. @ $5.70/1,000 gals. all over 5,000 gals. @ $4.43/1,000 gals.
I understand that the town desires to provide water service to the area within the
corporate limits which is currently served by the Arthur-Shawanee Utility District, and
LMU has requested this service from the town. The town asked MTAS to provide an
estimate of the cost for facilities to provide service.
An engineering study would need to be conducted to determine if (1) the LMU
source is sufficient to provide the additional water needed, and (2) the existing
infrastructure between LMU’s source and the town would need upgrade. At a minimum
the following components would be required for the town’s water system to serve the
area in the corporate limits now served by the utility district: a pumping station, line
extension and appurtenances and a water reservoir. Land and easements would have to
be acquired for these structures. The town has no water lines within the un-served area.
The pressure at the highest connections (Ashton Road) in the vicinity of the LMU
apartments is purportedly marginal at times, and the apartment property is at a
considerable higher elevation than Ashton Road. A water storage reservoir would be
needed to provide adequate quantity (such as for peak usage and/or fire fighting) and
adequate pressure. Assuming that water could be supplied to the LMU apartments
through the town’s system, MTAS provides the general cost information on the
worksheet attached. We do not have adequate information to provide detailed costs for
this project.
As I mentioned to Ms. Moyers during my visit, MTAS researched Tennessee
Code Annotated and determined that there are no provisions for municipalities to
takeover the service area of another water utility without the water utility’s permission
and cooperation.
Tennessee Code Annotated (see attached) authorizes methods by which a
municipality can acquire a utility district (or portions of a utility district’s service area) if
both parties are willing. It is a common practice for utility districts to merge with or sell
service area to municipal utility systems. This type of merger or acquisition of service
area can be easily managed as long as both parties can agree on terms.
MTAS advises that the town first determine if the utility district is willing to
allow the town to obtain its service area within the corporate limits. Then proceed with a
firm engineering cost estimate of infrastructure necessary to serve the proposed area.
Whether the utility district proves willing or not to give up its service area within
the town’s corporate limits, the least costly solution for the town to provide water service
to the LMU apartments could be for the town to buy water from Arthur-Shawanee Utility
District at the corporate limits and resell water from that source within the town. This
could prove a less costly solution to provide water service to the LMU apartments
(existing and proposed) and to also improve water pressure to connections along Ashton
Road if the town wants to interconnect with its existing system.
If the LMU apartments each use 3,500 gallons per month and there are 247
apartments, the city would have to supply 864,500 gallons per month (247 x 3,500 gals.
/mo.) to this customer. Table 1 shows a summary of rate information for 864,500 gals.
/month usage.
Cost to Town buy 864,500
gals./month of water
Revenues to Town to sell
864,500 gals./month of
water to LMU apartments =
$4,536
Table 1
From LMU = $3,095
Difference to cover
operations = $4,536 $3,095 = $1,441
From Arthur-Shawanee U.D.
= $3,840
Difference to cover operations
= $4,536 - $3,840 = $696
If the town chooses to serve the apartments and is able to buy water from ArthurShawanee Utility District to do so, the real question becomes: “Can the town build and
operate infrastructure more economically than purchasing water from the utility district?”
As the attached table on debt service shows, if the town has to borrow $240,000 at
5% for 20 years for this project, the payment on principal and interest is $19,258/year or
$1,605/month. In addition, the town would incur additional costs of operations and
maintenance – particularly pumping costs and line and storage tank O&M.
LMU will likely ask which source can provide water to its apartments at the best
cost. At current rates and 864,500 gallons per month usage, LMU can expect the
following charges:
Cost to LMU to buy 864,500
gals./month of water
From Town of
Cumberland Gap
$4,536
From Arthur-Shawanee
U.D.
$3,840
Thus, the town should consider the following questions before proceeding further
with this project: First, would Arthur-Shawanee Utility District give up its service area
within the corporate limits? At what cost? What advantage would it be to the town to
obtain the LMU apartments as a water customer? What advantage would it be to LMU to
discontinue obtaining water service from Arthur-Shawanee Utility District and start
obtaining it from the town at a higher cost?
Please call if you have questions about this letter or its attachments of if MTAS
may assist further.
Sincerely,
Sharon L. Rollins, P.E.
Manger of Technical Consulting
attachments
c: Margaret Norris