State regulators denied an Eastern Kentucky water district’s request to increase rates by 33 percent Thursday, citing “a lack of candor and a failure to properly provide documentation” that would support the need for a steep rate hike.
Southern Water & Sewer District, which serves about 5,400 homes and businesses in Floyd and Knott counties, first asked to raise rates in July 2018. Throughout the application process, the district was unable to provide the accurate financial records necessary to justify a rate increase, state regulators said.
According to the Public Service Commission, the state agency that regulates most Kentucky utilities, water districts must provide one full year of financial records to receive approval for a rate increase. Southern Water and Sewer could only provide one month of records.
“Most notably, Southern Water lost a number of financial records when it switched billing systems and failed to archive the records from the previous system,” the Public Service Commission wrote in a news release. “That made it impossible to verify key portions of the utility’s application.”
A rate analysis performed by the PSC found the district could justify an even higher rate increase of 38 percent, but said that because of Southern’s incomplete record-keeping, that figure was based “on assumptions and estimates provided by Southern Water,” rather than actual data.
Dean Hall, Southern’s general manager, said he does not believe the district showed any “lack of candor,” and believes the district provided enough financial information for the PSC to approve its rate increase.
“We’re definitely disappointed that we didn’t get our rate increase and we will struggle financially until we can get one,” Hall said. “The further down the rabbit hole we go, the harder it will become.”
Hall said the district is operating in a financial deficit, and that without a rate increase it “will become harder to buy the necessary things to keep the water on.”
In an order issued Wednesday, state regulators said they are reviewing evidence related to Southern’s operations and management, and may open a separate investigation to review the actions of Hall and the district’s board.
The state’s Attorney General’s office, which intervened in the case, recommended opening an investigation into whether the district knowingly violated state law by obtaining two loans without the permission of regulators.
In neighboring Martin County, the Attorney General’s office called last month for a takeover of the water district, saying officials had repeatedly failed to improve the Martin County Water District’s finances and operations.
A Herald-Leader series published last year, called Stirring the Waters, showed that many water districts in the region, including those in Floyd and Martin counties, are faltering, leaving many residents in Appalachian Kentucky with unreliable water that they don’t dare drink.
Like many water districts in Eastern Kentucky, Southern has struggled to maintain its aging infrastructure. Through leaking lines and meters, the district loses more than 40 percent of the water it produces before it reaches customers.
According to data from the U.S. Environmental Protection Agency, the district has also been in violation of the federal Safe Water Drinking Act since 2015 for a variety of factors.
The district often exceeds acceptable levels of “disinfection byproducts” — chemicals created during the water treatment process — and has also violated public notice and consumer confidence regulations.
Last year, hundreds of the district’s customers also suffered from water outages that lasted days at a time.
Southern’s rate request would have increased the average customers’ bill by about $13.20 a month.
The Attorney General’s office asked regulators to consider the affordability of the rate increase during its review. Both Knott and Floyd counties are among the poorest in Kentucky. According to data from the U.S. Census Bureau, the poverty rates in 2016 both topped 30 percent.
Many water districts and county governments have also suffered from a declining population in Eastern Kentucky.
In Floyd County, the population dropped from nearly 42,000 in 2009 to about 36,300 in 2017.