Jan. 10—Newton Mayor Evelyn George alleged Iowa Regional Utilities Association (IRUA) owes hundreds of thousands of dollars in back payments to the city for refusing to commit to the new water rates set by the city council last year. In a statement released Jan. 8, the mayor likened the action to underpaying at the fuel pump.
“Imagine setting your own price for fuel when filling your vehicle and paying the cashier far less than the price shown on the pump,” George said in the statement. “How long would you be allowed to keep purchasing fuel at that station, and how long could that station keep operating?”
Followups conducted by Newton News show IRUA may even owe the city more than $2.7 million. Newton City Administrator Matt Muckler said depending on the outcome of the lawsuit IRUA filed against the city and according to the ordinance rate schedule, IRUA owes the city $2,755,682.65.
IRUA purchases water from Newton, Marshalltown and Pella in order to serve rural customers in Central Iowa. George said despite the city raising IRUA’s rate in accordance with the contract between the two parties, the utility company has refused to pay the new amount and now owes the city back payments.
Recently, the Newton City Council approved a $2.5 million loan agreement to pay for projects and equipment for the water department.
Newton Mayor Evelyn George
However, George alleged the water department’s immediate and long-term planning is nearly impossible because IRUA “has refused to commit to a new rate or monthly volume of water to be used.” It is the city’s position, she added, that it is unfair for IRUA to push the costs of water purchases onto Newton residents.
“The City of Newton and its residents simply ask IRUA to pay a fair price,” George said. “I expect IRUA customers would want the same.”
IRUA RESPONDS TO MAYOR’S STATEMENT
Matt Mahler, CEO of IRUA, told Newton News he disputes the accuracy of the mayor’s statement. He confirmed the utility filed a lawsuit against the city in June 2024. Mahler said the lawsuit was filed as a result of the mayor’s threat to cut off water to IRUA if it did not pay the “unworkable rates” passed in March 2024.
“IRUA has continued to pay every month for water it purchases from the City of Newton, and IRUA pays for this water at a rate higher than what was in place under the last contract extension,” Mahler said. “This arrangement was agreed upon between IRUA and the City of Newton while the lawsuit is ongoing.”
Which is why the mayor releasing the statement comes as a surprise to him.
Mahler said it is IRUA’s hope that the utility and the city can come to a reasonable solution to this disagreement as swiftly as possible; as a not-for-profit, IRUA is “going to work passionately to represent the interests of its members and customers” that rely on high quality and affordable drinking water.
Newton Mayor Evelyn George provided further clarification on the water rate increases for Iowa Regional Utilities Association, which is a topic that has spurred a lot of discourse and discussion amongst the community.
HOW DID THE CITY AND IRUA GET TO THIS POINT?
In March 2024, the city council increased water rates for IRUA. The decision was controversial not only because rural customers thought their rates would also increase significantly, but the council waived the second and third readings and adopted the changes on the spot, seemingly without IRUA’s knowledge.
IRUA has a long history of purchasing water in bulk from Newton WaterWorks and then selling it to rural customers. However, rates were considerably low for such a long period of time that the water was being sold for far less money than it cost to make it, according to city staff. The city sought to remedy that issue.
For several decades the Newton WaterWorks was operated by an independent board, but the results of a September 2022 special election pivoted management over to the city council. When the city took control of Newton WaterWorks, it conducted a cost-of-service study with engineering firm Bolton & Menk.
The study determined it cost the City of Newton more than $3 per 1,000 gallons to provide water to IRUA. Prior to council changing the rates, IRUA was charged as low as $1.09 per 1,000 gallons for 0 to 31 million gallons a month to as high as $1.23 per 1,000 gallons for anything above 93 million gallons.
But now the rates have changed to $9.73 per 1,000 gallons for a minimum of 0 to 31 million gallons a month; $9.73 per 1,000 for the next 14 million gallons, $9.79 for the next 48 million gallons; $3.27 per 1,000 for a minimum of 93 million gallons a month; and $3.34 per 1,000 for anything over 93 million gallons.
The 2019 water rate schedule for IRUA has been removed following council action on March 18. The rates have since been increased, and the decision caused an uproar in the community.
Since the rates for the lower volumes increased by nearly 800 percent, the utility company is incentivized to purchase the higher volumes at a discounted rate.
Ronald Dunsbergen, the president of the IRUA Board of Directors, argued in a past statement to Newton News that the utility company only purchased a minimum of 93 million gallons once every three months over the past three years. Which means IRUA would likely have to pay the higher monthly minimum.
In the same statement, the IRUA board president said the utility will exhaust all legal remedies available to have the city manage its rates appropriately.
IRUA FILES LAWSUITS AGAINST THE CITY
In IRUA’s lawsuit against the City of Newton, the utility alleges staff intentionally kept them in the dark while the city sought to increase water rates.
According to IRUA’s petition against the city, the council approved a professional service agreement asking McClure Engineering to perform a utility rate study analyzing and comparing the water, sewer and stormwater utility rates to other communities. It also included an analysis of wholesale customer water rates.
But IRUA said the scope of the McClure analysis — approved in December 2022 — did not include analyzing the city’s cost to produce water.
IRUA said the city did not provide written notice to the utility prior to approving the McClure analysis, nor did the city contact them prior to completing a facility plan report or even provide IRUA with a copy before the council meeting on Feb. 6, 2023. The report identified many water infrastructure projects were needed.
Newton Utilities Director Jody Rhone is the staff member who presented the completed report to council members. IRUA alleges Rhone falsely stated that every project that needs done — including a $6.4 million Jordan Well — is because of the amount of water WaterWorks supplies to IRUA.
Following the council meeting, Rhone met with Mahler and provided him a copy of the report. He told Mahler the projects were necessary and the city was addressing deferred maintenance and mismanagement of the Newton WaterWorks. The city officially took over WaterWorks in late 2022.
Mahler told Rhone that IRUA and the city would need to communicate and collaborate on any infrastructure projects or related rate increase initiatives.
The lawsuit claims doing so is part of the contract.
LAWSUIT ALLEGES CITY CAN ONLY RAISE RATES TO COVER COSTS
Important to note, one of the provisions in the original 1979 contract is that either party is allowed to increase or decrease the water rate annually based on demonstrable increase or decrease in the costs of performance under the contract. But the original contract also prohibits some water rate increases.
Specifically, the contract prohibited water rate increases based on the capitalization of Newton WaterWorks’s system, including not considering arbitrary write-ups or any expenditures by Newton WaterWorks for the sole and exclusive benefit of persons, firms or corporations other than IRUA.
Either way, IRUA alleges the city proceeded forward with its infrastructure projects and water rate increases without advising IRUA. The utility also felt it was left out of a June 2023 workshop in which staff discussed water projects and the water rates of IRUA. Newton News published an article about the meeting.
IRUA said the city deprived the utility of its right to participate in the special workshop and in the discussions for major upgrades to the city’s water system. It also alleged the city cannot increase IRUA’s water rates based on a comparison with the city’s water rates for its residents or wholesale rates in other cities.
At the workshop, IRUA said Rhone “misrepresented” that the city was losing money because residents were subsidizing the utility’s water rates.
IRUA states its contract with Newton WaterWorks only allows the city to recover its costs from IRUA and does not allow the city to “profit” from water sales to the utility company. The contract also limits the city’s ability to increase IRUA’s water rates to a demonstrable increase in the costs of the city’s performance.
LAWSUIT ALLEGES INCREASED WATER RATES BREACHED CONTRACT
Later into 2023, the city approved a cost-of-service study by Bolton & Menk. In George’s most recent statement, she said the study determined it takes more than $3 per 1,000 gallons to provide IRUA water. IRUA has not paid anywhere near that amount. George said Pella pays IRUA more than $4 per 1,000 gallons.
The lawsuit alleges the city failed to notify IRUA of its intent to approve a cost-of-service report, and it deprived IRUA of its right to participate in major upgrades to the city’s water system and the changes to water rates. The utility also alleges the cost-of-service study does not establish demonstrable increase to city costs.
IRUA heavily discredits the cost-of-service study. It said, among many things, that it draws broad conclusions on allocations that do not accurately reflect the city’s costs to produce water and that the study itself warns it is not to be used to set rates and notes it is only a partial analysis.
According to the petition — which demands a jury trial — IRUA alleges the city breached its contract when it increased water rates, saying the City of Newton did not act in good faith with IRUA to develop rates and did not comply with the provisions of the contract when approving the ordinance.
LAWSUIT ALLEGES CITY KNOWINGLY CONVEYED INACCURATE INFO
The lawsuit also criticizes the city for not providing supporting documents or addressing its alleged breach of contract.
When IRUA attempted an open records request in September 2023 for documents related to the contract, past IRUA water rate increases and the city’s current proposed water rate increases, the utility was met with a more than $7,500 fee to collect their documents.
Another open records request was submitted by IRUA in May 2024. This time it focused on the documents supporting the cost study and new water rate. The city produced the documents, but IRUA found it to be deficient and claims many documents were omitted. Again, they were charged an “unreasonable” fee.
IRUA claims the city also knowingly conveyed “inaccurate or misrepresented information” to the news agencies and public in an attempt to justify its breach.
The information IRUA is referring to is a statement George made in April 2024. In it, she summarizes the somewhat tumultuous relationship between the city and IRUA, and she said council increased IRUA’s rates based on the cost-of-service study. She also compared the rates Pella and Marshalltown charge to IRUA.
Table 6.1 shows the cost of service comparison for commuities providing water to rural water utilities such as Iowa Regional Utilities Association.
George reasoned it cost the city $3.27 to provide IRUA 1,000 gallons of water, which is the exact rate set for IRUA’s discounted monthly minimum of 93 million gallons. The mayor, however, makes no mention of the other rates, including the monthly minimum of $9.73 per 1,000 gallons for 0 to 31 million gallons.
IRUA says it has informed the city that the new water rates will force IRUA to increase the rate it charged IRUA customers, which will decrease the volume of water customers purchase and further reduce the ability of IRUA to meet the 93-million-gallon discount rate threshold.
IRUA’s lawsuit calls George’s statement an “inaccurate narrative.”
UTILITY CLAIMS CITY CANNOT MAKE MAJOR UPGRADES WITHOUT IRUA
IRUA is seeking declaratory action from the court, saying the city is bound by the terms of its contract and subsequent modifications and that any increase or decrease be based on a demonstrable increase or decrease in the costs of the city performing its obligations to provide IRUA with water.
The utility claims its contract prohibits the City of Newton and its council from increasing water rates based on capitalization of the city’s water systems, and the contract also prohibits the city from developing and implementing major changes to it water system without IRUA’s participation in the process.
IRUA specifically asks the court to:
—Declare the city’s increase to IRUA’s water rate breached the contract,
—Declare the city’s failure to allow IRUA to participate in major upgrades breached the contract,
—Declare the city’s failure to allow IRUA to provide value engineering for major upgrades breached the contract,
—Enjoin the city from implementing the July 1, 2024 and July 1, 2025 water rates approved in the ordinance,
—Order the city to work with IRUA in good faith concerning major infrastructure projects and when reviewing IRUA’s water rates,
—Award IRUA its attorneys’ fees to the extent permitted by law, and
—Award any and all other relief the court deems just.
GOOD FAITH & DEFAMATION
In addition to seeking declaratory action from the city, IRUA wants judgements for the city allegedly breaching its contract and breaching the implied covenant of good faith and fair dealings. IRUA says it justifiably relied on the city to continue working with the utility concerning maintenance and improvements.
IRUA says the contract is meant to establish a relationship between the utility and the city and ensure Newton’s water system continues to operate. This requires IRUA and the City of Newton to work together to address significant maintenance, repairs and improvements that benefit both sets of customers.
For instance, IRUA points to its involvement with funding and building various water system capital improvement projects that benefits the city and the utility. IRUA also recalls an incident in which it assisted Newton WaterWorks in making vital repairs without compensation.
Newton WaterWorks struggled to repair a supply main in the water plant with the equipment it had available. IRUA immediately mobilized equipment and workers.
IRUA is also suing the City of Newton for defamation libel per se. IRUA alleges past statements and infographics made by the city — 1) That it costs $3.27 per 1,000 gallons to produce water for IRUA, and 2) That the city is charging IRUA $3.27 per 1,000 gallons after the rate increase — are false.
IRUA says the infographic posted on the city’s website called into question what rate the utility will charge customers, suggesting the company cannot be trusted if the rates are increased to cover the actual charges by the city. IRUA says these statements and publications have damaged the utility’s reputation.
Infographic by City of Newton showing how the water rates for IRUA are covering the costs to produce water for the rural utility company.
OTHER COMMUNITY DESCRIBES GOOD WORKING RELATION WITH IRUA
Shelli Lovell, general manager Marshalltown Water Works, described a positive working relationship with IRUA and its board. The two entities have an open dialogue regarding rates and operations, and Marshalltown Water Works tries to be cooperative and work with IRUA as much as they can.
“If they need some sample analyses that our lab can help with, we do that,” she said. “When we had a large main break and needed help with digging, they came out and helped with that. It’s a very cooperative partnership. The discussions regarding rates … is more a matter of documenting what our needs are.”
While Marshalltown Water Works makes IRUA aware of when water rates are being reviewed, rate negotiations do not happen every year. The rate increases typically take effect on July 1, which is the start of the fiscal year, although there has been an instance where the rate change occurred later.
Currently, Marshalltown Water Works charges $2.76 per 1,000 gallons.
When Marshalltown Water Works develops a new rate, Lovell said information is shared with IRUA and it makes for a “very transparent” conversation with the utility. But something like that, she added, is less so a negotiation and more so an opportunity to be informative and transparent with IRUA.
“They aren’t at the table as we’re developing the rates,” Lovell said.
The water rate Marshalltown Water Works charges to IRUA covers the capital expenses and administrative costs associated with providing the water.
In Marshalltown, water is produced at the treatment plant and it is delivered through a water line to IRUA’s connection point. Apart from Marshalltown maintaining that connection point, Lovell said there are administrative services with billing and metering that are factored in to the utility’s cost.
Costs go up every year, and Lovell said rates at a minimum have to reflect that.
“But we have a number of significant capital improvement projects that we’re working on, so the rate increases do exceed the (consumer price index),” Lovell said, noting that one such capital project includes an additional treatment plant currently estimated at $45 million.
Read Mayor Evelyn George’s full statement here:
Imagine setting your own price for fuel when filling your vehicle and paying the cashier far less than the price shown on the pump. How long would you be allowed to keep purchasing fuel at that station, and how long could that station keep operating?
IRUA (Iowa Regional Utilities Association) purchases water from several cities, including Newton, Marshalltown and Pella, to service its customers in central Iowa. Currently, they are paying the City of Newton less for the water it purchases than it costs the City to make.
Last year a cost-of-service study was conducted by engineering company Bolten & Menk to determine the cost of providing water. The study determined it costs the City of Newton over three dollars per 1,000 gallons to provide IRUA water. Currently IRUA is paying less than two dollars per 1,000 gallons, and there has not been a rate increase since 2019. As a comparison, IRUA presently pays Pella over four dollars per 1,000 gallons.
Despite the City raising IRUA’s rate in accordance with the contract between the parties, IRUA has refused to pay the new amount. At this point IRUA owes the City of Newton hundreds of thousands of dollars in back payments due to the high volume of water IRUA purchases, which it then resells to its customers at a higher price.
Recently the Newton city council needed to approve a nearly three-million-dollar loan agreement to pay for projects and equipment for the Water Department. The Water Department’s immediate and long-term planning is nearly impossible, because IRUA has refused to commit to a new rate or monthly volume of water to be used.
This City’s position is that it is unfair for IRUA to push the costs of its water purchases onto the other users of the Water Department—the residents of Newton. The City of Newton and its residents simply ask IRUA to pay a fair price. I expect IRUA customers would want the same.