Emergency 28 percent rate hike ordered to prevent collapse of Kentucky water district

Niles Cumbo, then-superintendant of the Martin Co Water District, looks over the treatment tanks at the Martin County Water District water treatment plant on Turkey Creek Road in Inez, Ky., Wednesday, January 25, 2001.
Niles Cumbo, then-superintendant of the Martin Co Water District, looks over the treatment tanks at the Martin County Water District water treatment plant on Turkey Creek Road in Inez, Ky., Wednesday, January 25, 2001.

Water rates will increase by 28 percent for customers in Martin County in an effort to stave off the impending financial collapse of what has been dubbed Kentucky’s “worst water district,” state regulators announced Friday.

In addition to approving an emergency rate increase for Martin County Water District, the Kentucky Public Service Commission ordered the beleaguered district to more aggressively pursue past-due bills by selling old debts to third-party collection agencies, and by shutting off running water to customers who do not pay their bills within 20 days.

According to the order, the district can terminate service five days after it issues a written warning, and 20 days after it sent a bill that hasn’t been paid.

The district, which is more than $800,000 in debt and unable to pay for basic operational repairs, is owed more than $600,000 in uncollected water bills, according to a PSC news release. More than a third of the people in the Eastern Kentucky county live in poverty.

The water district made national headlines this winter when many of its customers went days, and in some cases weeks, without running water after service lines and an intake pump froze during frigid weather.

The district also has come under scrutiny of the PSC for poor financial management.

In January, the district requested an emergency rate increase of 49.5 percent, warning that it might collapse financially within 60 to 90 days. Joe Hammond, the district’s business manager, abruptly announced his retirement in February.

“Some increase was inevitable,” Mary Cromer, an attorney with the Appalachian Citizens’ Law Center, said Friday afternoon.

The district could not survive without additional revenue, and its collapse would have been catastrophic for schools, homeowners and businesses, she said.

“At the same time, it’s going to have a huge impact on people who are living on a fixed income,” Cromer said.

Under the PSC’s order, the district can temporarily increase its base rate by 17.5 percent and place a surcharge on each of its 3,200 customer to help pay its debt. Together, the increases will raise the average monthly bill by $11.17, according to the PSC.

“The reality of the situation is that, absent some amount of the emergency relief requested, Martin District will be unable to continue operating within 60 to 90 days, leaving every customer with no water service, forcing residential customers to abandon their homes and commercial customers, including schools, to close,” the PSC said in its order. “While raising water rates clearly places an increased burden upon Martin District’s customers, the alternative of not raising rates would create an even greater burden.”

Carol Preece, a water district customer, said many customers are “probably mad as heck right now” about the increase, but she hopes the district can fix some of its ongoing problems with the new influx of cash.

“If they don’t fix it, these people aren’t going to pay,” Preece said. “Even if they pull their meter out of the ground they won’t pay it.”

The district has already been awarded about $5 million in grant money to help pay for capital projects to improve water access and quality.

Customer Gary Michael Hunt said he does not trust the water district to spend money responsibly, and that “if a man can’t drink the water they shouldn’t give him a rate increase.”

Residents have long complained the water coming from their faucets is sometimes brown and causes rashes and sores, and that drinking it can lead to more serious illnesses, such as cancer.

The water district refutes those claims, saying the water is safe and is now in compliance with all federal regulations.

BarbiAnn Maynard, another customer, said she thinks the PSC order is fair, and that the agency showed it wants the best for residents.

“I knew there was going to have to be a rate increase because obviously a lot of work needs to be done,” Maynard said. “They thought of the people and kept us in mind when they made their decision.”

Martin County resident BarbiAnn Maynard blames poor water quality for the cancer that killed her mother. The water district claims the water is safe.

The increase and surcharge approved Friday will bring in an additional $482,000 of revenue annually.

About $319,000 of that will be used for operational expenses, while the remaining $163,000, collected through the surcharge, will be placed in a separate account and can only be used to pay off debt or as collateral to obtain a loan to pay off debt. The district is not allowed to spend any of the $163,000 without prior PSC approval.

With the rate increase comes stricter reporting requirements.

The district must submit monthly reports to the PSC that detail its revenue and spending. Those reports will be available to the public, the PSC said.

Failure to comply with PSC’s regulations could lead to serious repercussions, the agency warned in the order, including: ordering the district to refund to customers all revenue gained through the increase; removal of water board members; placing the district under the control of an outside utility; or forcing a merger with a nearby utility.

“To resolve the financial and operational problems facing Martin District, the commissioners will need to put forth an effort equal in commitment to that of the Martin County citizens who have worked to call attention to their need for better water service,” the PSC said. “All citizens of Martin County are affected, and all citizens deserve adequate and reasonable water service around the clock.”

Maynard said she was pleased to see the PSC focus on financial transparency and accountability.

“That’s really what got us in this situation in the first place, is mismanagement,” Maynard said. “I am really happy that they went with transparency.”

Will Wright is a corps member with Report for America, an initiative of The GroundTruth Project. Reach him at 859-270-9760, @​HLWright