Iola will send a notice to Gas that it intends to terminate a water purchase agreement between the two cities.
The termination, it should be noted, will not take effect until 2031, giving the cities 15 years to decide whether to renegotiate.
The unusual notification came about because Gas has resisted Iola’s intentions earlier this year to raise its water rates.
At issue is the agreement, ratified in 2001, that limits the amount of times — six — Iola can raise the price of treated water it sells to Gas over the 30-year pact.
Because of increased costs related to water production — including construction of a new water plant in 2005 — Iola already has exhausted those six hikes.
Four of those increases have been since 2011 as Iola has struggled to balance its water fund (the fund operated at a loss the four years prior to 2011.)
Gas City Council members have thus far resisted Iola’s attempts at a seventh water rate hike, of 3 percent, which was approved by the Iola Council in April.
The contract cannot be terminated early, unless both cities agree. That means any unilateral decision by Iola must be at the end of the contract.
“The idea is to renegotiate,” City Administrator Sid Fleming said.
Iola is hoping Gas is receptive to renegotiating because Gas likely would have to make substantial capital investments in its water lines in order to draw water from elsewhere once the contract ends.
“We want to make sure we have flexibility to have additional (rate) increases,” Fleming said.
He estimated leaving the water rates to Gas at its current level for another 15 years would cost Iola about $326,000.
“That’s about $7.80 per person, per year in Iola,” Fleming said.
The vote followed a 15-minute executive session to discuss the contract with City Attorney Bob Johnson, and comments from Chuck Richey, chastising Iola for its history of dealing with other wholesale water customers.
“I don’t know if any of you know why Public Wholesale Water was built in the ’80s,” Richey said. “It was built because you sold water to some of your entities, and you wanted to tell them how to use it, and how to sell it, and you wanted to raise prices.
“What happens if you lose Gas?” he asked. “You lose 50,000 gallons a day you’re selling now.”
Richey said the water fund would be healthier if Iola would cut transfers to its general fund.
Iola traditionally uses utility reserves to buffer its general fund in order to keep its property tax levies lower than they otherwise would have been. The city largely has curbed transfers from the water fund, however, because of its low levels..
Richey works for the public wholesale water district, but stressed he was speaking on his own behalf, not the water district’s.
Iola will end water contract with Gas (in 2031)
