HSVPOA Public Services Director Ken Unger explains how Arkansas Act 605, passed on April 5, 2021, will affect Hot Springs Village utilities. Previously, the law regarding Arkansas Water providers was called Senate Bill 386. Act 605 amends Bill 386, adding Subchapter 8 — Oversight of Retail Water Providers. The wastewater system also falls under the 605 requirements because the sewer service and water facilities are operated as a joint and integrated undertaking and fall under a single audit.
Act 605 Provides Oversight of Arkansas Retail Water Providers
The Director said, “Act 605 is a blueprint that tells municipalities and entities like us that you need to get your water and sewer systems in order. You need to have your capital plans laid out. You need to have rate study results that mirror the capital plan and put those rates in place.” Unger said the cost of a rate study might run around $40,000.
The 605 Act was instigated due to smaller communities with failing water systems. These communities usually don’t have the resources to make needed upgrades. Unger stated, “The state said you need to start putting plans in place to deal with the problems you have, and you can’t just ignore them.”
Unger said, “We have been told by the Arkansas Department of Environment Quality (ADEQ) that we fall under this Act. We have no choice but to comply, or we will be penalized.”
Act 605 tasked retail water providers (except those regulated by the Arkansas Public Service Commission) with additional responsibilities in managing and operating their water systems. These included requirements such as:
- Annual rate studies
- Filing of rate studies with the Arkansas Legislative Audit
- Training requirements for the retail water providers’ governing board
- Provisions applicable to retail water providers under fiscal stress
Definition of Retail Water Supplier
Law Insider states, “Retail water supplier means any local entity, including a public agency, city, county, or private water company, that provides retail water service.”
Law Insider also says, “Retail water supplier means a person or entity that supplies water for human consumption and other domestic uses to an end user and has more than five hundred (500) service connections.“
Oversight Board (Meaning HSVPOA Board of Directors)
“Most utilities have a utility board that oversees and regulates what they do. In the case of Hot Springs Village, the utility oversight board is composed of the HSVPOA Board of Directors,” said Unger.
Training Requirements
Unger stated, “Most of the [HSVPOA] Board Members have gone through a required eight-hour class.” Additional class participants were Ken Unger, Kelly Hale, and Katrina Heap.”
Katrina Heap, Administrative Assistant to the GM, said, “[HSVPOA] Board Members have one year to take and pass the course from the date they were elected; we still have a couple that have not completed it.”
Unger said, “Act 605 requires anyone over the utility to take the training and be educated on what it means to run a utility. In our case, our water and sewer utilities are run by the HSVPOA Board of Directors.”
“The Board oversees everything we do because they approve financing, approve motions for improvements, etc.,” explained Unger.
“The training is to educate the people who oversee the utility – in our case, that is the HSVPOA Board of Directors – to educate them so they understand water systems, the financial aspects, and other issues,” stated Unger.
Work in Progress
Unger will need to consider both water and wastewater operations when planning.
Unger said he has not informed the HSVPOA Board about all the specifics of the numbers because that is still a work in progress, “but the Board knows there is a lot of infrastructure work that needs to happen and that according to this Act, it needs to be documented, put into a water rate study. We had a water rate study done about five or six years ago that was followed to determine the rates. The problem with that rate study is that it didn’t include all the infrastructure work needed.” The wastewater system also falls under the requirements.
Unger said in the past year, he has focused primarily on the problems in the sewer (wastewater) system. There were a lot of overflows, and Federal and State Agencies didn’t like that happening. The proposed wastewater system plans Unger devised, with the help of Crist Engineering, are subject to Board approval. Repairing, upgrading, and consolidating the HSV existing wastewater system is estimated to run between $22.85 to $30.75 Million. If the two wastewater plants (Mill Creek and Cedar Creek) are not consolidated, the cost to repair and upgrade could run up to $45 Million. Currently, the proposed plan is to consolidate. The plans are still being refined, and these numbers are not set in stone.
The water side of the picture is still a little vague. Unger said there are still a lot of unknowns on the water side of the equation. “We know there was a water study done in 2016 by Crist Engineers. I just contracted with Crist to do a relook at the 2016 rate study – an updated water model and relook at the conclusions from 2016. The master plan from 2016 included projects they identified needed to be done, but 2016 pricing and 2024 pricing are a lot different. In 2016, some of what was done in the rate study was inaccurate because they didn’t have a lot of good data. We will provide them with as much new data as possible,” detailed Unger.
Previous Water Plant Upgrade
The water plant was upgraded in 2014 from a capacity of 4 million gallons daily to 6 million gallons, with the ability to expand to 9 million gallons daily, which was the 2050 projected need—information taken from a 2015 Lakes Committee Report.
“Outside of the age of the infrastructure, what is not always understood is that when you upgrade a water plant from 4 million gallons a day production to 6 million gallons a day production, that doesn’t result in more water in the system due to the size of the pipes.
Unger stated, “You can’t just upgrade the [water] plant and say everything is okay. That is just a chokepoint. The plant is limited in output ability. The 2014 water plant upgrade did not solve all of the issues.”
What is needed, and what drives peak water utilization?
Questions that need to be thoroughly examined and answered are how much storage is required and how to move more water to the east side of the village or up to the mountains (when needed in the future). The number and location of new water tanks are still to be determined.
Village growth and demand increase must also be taken into account. The previous masterplan did not go into all the details for these things. The need for upgrades such as more storage capacity and other water system upgrades is immediately tied to the demand that Villagers put on the system, both from current and future population growth.
“If growth needs for the water system are being driven by two months out of the year [meaning irrigation of yards] and not by our normal usage, is that what we want to happen?” Unger asked. “Do we want the two months out of the year that causes us to peak to trigger water plant upgrades? By the way, the State doesn’t care when it happens. They don’t say you’re good if it only happens for a month or two of the year. We’ll let you slide. When you trigger system and plant utilization thresholds, the State expects you to start upgrading. Again, if you look at how our rate structure is set, we don’t discourage excess water usage,” detailed the Public Services Director.
“I have seen the past two years that the two months of irrigation are driving our peak utilization. And I believe that drove the peak utilization that forced the water plant upgrade in 2014,” explained Unger. HSV water usage spikes in July and August. The water plant’s four million gallon output is sufficient for the rest of the year.
To accommodate irrigation water usage, the POA could be forced to build large water storage tanks and do other things to accommodate the increased usage. A water tank costs between $2 to $3 million. This cost does not include the extra lines needed for distribution from the tank.
Designing a system to accommodate a larger peak season can create other problems because the infrastructure is not fully utilized for the rest of the year. You have excess storage for the rest of the year, which could create issues.
Unger stated, “The question the [HSVPOA] Board needs to answer is, ‘How do we want to handle that? I am not necessarily saying to discourage [outside] watering because everybody should have the right to do what they want. But if that watering, which is discretionary, will drive millions of dollars in costs, shouldn’t that [irrigation] watering pay for those increased costs.”
Unger said they are not trying to punish people that have lawns. Unger said you can have your lawn if you want it. If you are not willing to pay for the needed water system upgrades to water your lawn, then you are asking everybody to pay for the upgrades, even though the irrigation is what is driving the need for the upgrade.
Rate Studies
Under Act 605, rate studies done by certified entities are required. A rate study in the Village is required to be completed by July 1, 2026, and every five years after or before any major development project. Rates determined from the study must be implemented within one year of the completion of the study or two years if the recommended rates increase the provider’s rates by fifty percent or more. Failure to complete the required rate study or implement the required rate increases will result in a determination that the water provider is in fiscal distress.
The engineering company conducting the rate study will recommend rates that cover the day-to-day expenses, maintenance, payments for any bonds, a reserve account, and any needed improvements. Our POA utility bills will be based on the findings and recommendations from the rate study.
Water Provider in Fiscal Distress
Various restrictions are triggered if you are deemed to be in fiscal distress. “I would venture to say you would not get approvals until you comply. We have to get our permits from the state. If you are in fiscal distress, you cannot get project financing.”
Act 605 says a water service provider may be deemed as being in fiscal distress if its board members:
- Fail to obtain the required training.
- The provider fails to file the required audit report or agreed-upon procedures and compilation report with the Arkansas Legislative Audit.
- The provider fails to maintain unencumbered cash or cash equivalents equal to one-twelfth of the total expenses from the most recent fiscal year.
- The provider fails to adopt a budget before a new fiscal year begins, providing sufficient revenues to meet or exceed anticipated expenses during that fiscal year.
- The provider fails to make all required payments due to the U.S. Treasury – Internal Revenue Service, AR Department of Finance and Administration, or AR Department of Health.
- Fails to make any bond, loan, or lease payment
- Fails to comply with an administrative order of the US Environmental Protection Agency, AR Department of Health, or AR Division of Environmental Quality concerning the operation and maintenance of the system.
Inverted Block Rate
In a previous article, Unger proposed adopting an inverted block rate. He said, “The goal of an inverted rate block structure is to make the [water] rates more progressive, which I think needs to happen… This keeps the base rate in control and fairly low for those who [conserve water] instead of raising all the rates.”
We have an excess water rate today where if you exceed the base water amount, it costs less per gallon for additional gallons over the base rate. This does not discourage people from using water.
“At the end of all this, our rate structure will be set up with the cost to operate, our ongoing capital needs, and the cost to fund major capital improvements. This will determine what our water rates will be. That is what Act 605 says,” shared Unger.
Driving Down Operating Costs
Unger said he is still working to drive down operating costs. “Last year, my operation expenses for water and sewer were $5.2 M. This year (2023), I hope to come in about $4.6 or $4.7. This includes raising salaries and adding staff. What this reflects is that we are trying to improve our operations. The goal is to drive down what it costs us to operate efficiently. Last year, I restructured the organization, moving people around and eliminating some jobs; all this was an effort to improve efficiencies. What drives this number down is our ability to do tasks in-house. It is hard for staff to accomplish in-house projects if most of their time is spent fighting fires. The goal is to fix all the fires,” explained Unger.
Unger said his goal is to establish an operation, capital, and financing budget and achieve net neutrality yearly.
Comparing Rates With Surrounding Communities
Unger compared Hot Springs Village water rates with some surrounding areas.
Cost for Residential Water in Hot Springs Village
It can be confusing, and we must remember that the Hot Springs Village utility bills cover two months.
Unger stated, “We charge $18.13 monthly base rate for 2,500 gallons of water. The POA bills every two months. Two months for a base rate of 5,000 gallons is $36.26.
The charge for 1,000 gallons (base rate) is $7.25. Excess water (over the base amount) costs $5.16 per 1,000 gallons. Additional gallons over the base allowance are sold at a 30% reduction.
Cost for Residential Water in Hot Springs
There are two different rate structures in Hot Springs, depending on your location:
- In City
- Out of City
The Hot Springs City cost for 2,500 gallons is $19.89. But Hot Springs has a base allowance of 1,000 gallons per month, compared to the 2,500-gallon monthly base allowance of 2,500 in the Village.
The Hot Springs Out of City rate for 2,500 gallons of water is $29.87 monthly.
In Hot Springs, the water usage is directly related to the sewer usage. We have a flat rate for sewer in the Village. Hot Springs also has a flat fee for a separate irrigation meter and charges for water usage on the irrigation meter. Unger said it is around $20 to $30 a month for an irrigation meter (which doesn’t include the irrigation water usage).
Cost for Residential Water in North Garland County
North Garland County charges $45.29 per month for 2,500 gallons of water. North Garland County only has a base allowance of 1,000 gallons.
Bryant
If you use 2,500 gallons, you will pay $17.32.
By Cheryl Dowden
Rules Implementing Act 605 of 2021
Contact Information for HSV Public Services Director
Ken Unger
Director Public Services
Hot Springs Village
501-226-9609
Kunger@hsvpoa.org
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You don’t want those who have rock yards to pay extra for water. Yet you want me, a non-golfer, to pay for golf course improvements and maintenance, which I assume includes watering. All of the property restrictions in HSV that keep out trashy yard displays, junk cars, fences etc keep our properties looking tidy and well maintained. They serve a purpose, in making this an attractive community and keeping property values up. Those yards not watered will burn to a crisp, inviting weeds and ensuring ugliness. Healthy lawns benefit all in HSV.
Hi Michael, the lakes are used to irrigate the golf courses. – Cheryl
All the above is a lie. Village gets all it’s water from lakes
Sara, I notice that you feel comfortable calling someone a liar, but you do not feel comfortable doing so using your name. “The source of potable water for the Village is the Middle Fork of the Saline River. Pumps are located on the Middle Fork on Village-owned property near the Cortez golf course area. These pumps move water into Lake Lago during high flow periods only, and can refill Lago at a rate of 7 mgd.” The cost of the water to Villagers is based off of the water processing and distribution costs, including maintenance of lines and the water plant, needed infrastructure upgrades, day-to-day operating costs, and interest cost if loans are taken out to pay for upgrades. These are only a few costs off of the top of my head. Please point out where anyone lied in this article and please have the courage to use your full real name, if you want anyone to take your libelous statement seriously.
Thank you for the detailed explanation of this new reality. I moved from Frisco, Texas (North of Dallas) where I paid $25 for 2,500 gallons of water per month (versus $18.13 here). I’d rather start paying more right away to help the POA stay ahead of maintenance costs and prudent upgrades. Why? Because a little more is easier to swallow than a big assessment later. And someday I’d like my heirs to be able to sell my house and say “HSV POA made the right water investments early, so it remains a great place to live…unlike some municipalities that got this wrong and saw their property values plummet.” I also feel like we need to be ahead of the other cities, who soon will be vying for the same contractors, engineers, equipment, and supplies to fix their infrastructure.
Might “Water Conservation on Golf Courses” be helpful?
https://www.usga.org/course-care/water-conservation-on-golf-courses-fbe1f5ee.html
Hello Mrs. Miller. As far as I know, the golf courses are irrigated with lake water. The lakes were built for that purpose. – Cheryl Dowden
Nice! Thank you Cheryl.
You are welcome. – Cheryl Dowden
As far as you know, the golf courses are irrigated with lake water?
Have you asked anyone about this?
What does the golf dept say and were they (golf courses) ever irrigated with treated water from our plants?
Thank you for commenting, Steve. I know for a fact that the lakes (Oops, this should say golf courses) are irrigated with lake water, but I do not know for a fact that treated water has never been used. Someone in management told me the lakes were built for the purpose of watering the golf courses. Why don’t you ask the golf department and let us know what they say. I am curious to know the answer. Thanks, again, Steve and I hope you have a great day! – Cheryl
I am impressed with the study and in depth explanation of 605. Ken Unger has done an amazing job and is very knowledgeable on many infrastructure issues. We are lucky to have such a dedicated person.
Thank you Mr. Unger for staying on top of this, and keeping HSV moving in the right direction.