Thanks to Sen. Tom Buford and a legislative committee for taking a look back at questionable, costly decisions made over the last decade about Central Kentucky’s water supply.
The Public Service Commission, which is being asked to grant Kentucky American Water its fifth rate increase in nine years, would benefit from a similar retrospective — not because past mistakes can be reversed. As Buford said, “that money’s already been thrown out the back of the plane.” But learning from the past can help avoid missteps in the future.
The lessons could be especially useful to taxpayers now, as Kentucky enters a new era of public-private partnerships, thanks to a law enacted earlier this year by the General Assembly. Soon local officials, who are accustomed to awarding contracts through competitive bidding, will be fielding pitches from private businesses to provide government services and public infrastructure outside the competitive bidding process.
For them, there can be no better cautionary tale than the way Kentucky American Water, a private business, rolled the publicly-funded Bluegrass Water Supply Commission, made up of local governments.
The legislature’s Program Review and Investigations Committee is now wisely asking what the public got for the $1.8 million that the legislature appropriated to the commission, which was created in 2004 to develop a publicly-owned regional water supply network.
The benefits to Kentucky American are clear, as Buford told the committee earlier this month. The company used ideas and engineering developed at public expense by the water supply commission to build its treatment plant in Owen County and 31 miles of pipeline at a cost of $164 million for which consumers are paying dearly. As Buford, R-Nicholasville, said, “once you give them that rate increase it’s there forever.”
The cost of water to Kentucky American customers is almost double what it was a decade ago, while average consumption by households is down about 1,000 gallons a month. Lexington has some of the nation’s most expensive water, with another increase in the offing.
Investors in Kentucky American’s parent American Water, the largest publicly-traded U.S. water and wastewater utility company, have enjoyed a quadrupling in the value of their stock since the New Jersey-based company went public in 2008, thanks in no small part to money paid by Lexington households and businesses.
Buford, who represents part of Lexington, noted that demand for water is running far below Kentucky American’s apparently overbuilt capacity. Water production was just 43 percent of capacity in 2014. He also noted that in 2008 the Louisville Water Co. had offered to build a pipeline and sell treated water to Kentucky American through 2015 at wholesale rates far below what Kentucky American charges. The Louisville utility is in the process of building the pipeline to Shelby County.
Why the PSC in 2008 did not demand an independent third-party study of Kentucky American’s demand projections is a question that should nag the current PSC and ratepayers.
A draft study of the water supply commission’s history and spending was discussed by the Program Review and Investigations Committee earlier this month and is on the agenda again in July.
As Buford said, $1.8 million may seem minor in the context of state spending, but Kentucky can’t afford to waste any tax dollars. As Kentuckians continue to wrestle with challenging infrastructure decisions, lessons learned from this committee’s look back could prove very valuable.