Investigators from the state Comptroller’s Office were in Knox County this past week finishing up a “holistic” investigation of the Hallsdale-Powell Utility District.

The state is concerned about high debt levels and excess water loss from aging pipes.

“We’re working with the Comptroller’s Office to develop plans for how we’re going to approach the unaccounted-for water loss numbers,” HPUD General Manager Darren Cardwell said in an interview Friday.

The investigation was launched in April by the Comptroller’s Utility Management Review Board, which oversees gas, water and wastewater utility districts across the state. It was driven largely by concerns about HPUD’s ongoing water loss problems — in 2022, 46 percent of all the district’s water outflow was unpaid.

Some of that was because of the need to regularly flush the system’s aging pipes. But a lot of it was lost through the pipes themselves, via leaks and breaks.

Ross Colona, an assistant director in the Comptroller’s Local Government Finance division, told the review board at its April 20 meeting that the scale of the ongoing loss combined with HPUD’s relatively high rates and debt levels warranted a closer look by the state.

“This investigation isn’t just based on rates,” Colona said. “This investigation isn’t just based on water loss. This investigation isn’t just based on prior sewer issues. This is holistic. We want to look into the financial/managerial/technical capacities of the entire utility operation.”

(You can watch the review board meeting here; the HPUD discussion is toward the end, starting at 2:04.)

The state’s review comes after years of complaints by HPUD customers about high rates for the district, which provides water and sewer service to about 32,000 households across North Knox County and slivers of Anderson and Union counties.

Knox County Commissioner Rhonda Lee was elected last year on a campaign that included promises to try to hold HPUD accountable to frustrated ratepayers. In a news release last week, she thanked the Comptroller’s Office for the investigation.

“Since being elected in 2022 I have been in communication with the Tennessee Comptroller’s Office and state legislators about community concerns with HPUD,” Lee said. “This broad investigation is needed to make sure ratepayers have effective management and service so we can improve this situation.”

Addressing the review board at the April meeting, Cardwell said HPUD has a backlog of infrastructure improvements from decades of past deferred maintenance. He said the formerly mostly rural district — which now serves a growing suburban population — has been working to upgrade its pipes for years but still has a way to go.

“We’ve worked with professional engineering firms for 20-some years now,” he said.

But Colona told the board that the water loss numbers haven’t improved despite that work. He noted that in 2018 the district reported non-paid water volume of 42 percent, which actually rose to 45 percent in 2020 and 46 percent last year.

“There has been investment, there have been capital projects, but I'm seeing the same amount of non-revenue water,” Colona said. “And that is concerning.”

He also said that the borrowing required to fund those projects has pushed HPUD’s debt to high levels, along with the rates it charges its customers to pay for all of it.

Colona acknowledged that a Comptroller’s review of a customer complaint about rate levels in 2020 found that the district’s rates were justified based on its expenses. But, he said, that didn’t necessarily mean those expenses were reasonable.

“Based on all of the information provided, the rates are adequate,” he said. “But we just don't know if it's the best bang for the buck.”

He also noted that HPUD has an unusually high ratio of income to expenses, clearing $11 million in cash on $38 million in revenues last year — well above the 10 percent profit margin that is an industry standard.

But, Colona added, “The reason might be ‘We have a whole lot of capital projects that need to be done, so we need to have a higher profit margin so we can bring in the cash to be able to afford those things so we don't have to increase our debt.’ I totally get that.”

Cardwell nodded vigorously at that explanation. Nevertheless, the board approved Colona’s request to conduct a full investigation of the district. His team will report back to the board at a future meeting.

Cardwell said last week that HPUD has cooperated fully with the effort. He said that efforts to reduce water loss are already paying off.

“We’re still working on the water system, we’re still doing leak detection,” he said. “The numbers are going in the right direction, the things we’re doing are having a positive effect.”

He said recent measurements show a loss of about 38 percent of water volume — down from last year’s number, but still well above the 14 percent that the U.S. Environmental Protection Agency says is the national average.

Cardwell said he sympathizes with customer complaints about HPUD’s rates — “I’m a ratepayer myself,” he said. But he said there are 14 other utilities in the 16-county East Tennessee Development District with higher water charges.

And when it comes to utilities with infrastructure needs, there’s only one way to pay for them.

“We don’t get taxpayer dollars,” Cardwell said. “Ratepayers have to pay for the funds for the projects that get slated.”

Those needs are only going to become greater as the remaining farmland in HPUD’s service area continues to be developed. Cardwell said an estimated 500 to 600 lots are expected to come online in just the next year.