Martin County's troubled water district failed to meet its first reporting deadline to Kentucky regulators after it was granted an emergency rate increase to prevent its financial collapse.
The failure prompted regulators to threaten the water system again this week with a forced takeover.
The deadlines were issued when the Public Service Commission, the state agency that regulates most utilities in Kentucky, gave the district permission in March to raise rates by 28 percent.
Martin County Water District officials said the district needed an influx of cash to stave off impending financial collapse. As part of the agreement, the PSC ordered the district to submit detailed financial records on the 15th of every month, starting in April.
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The district didn't provide its first report until May 4.
"How hard is it to keep books just for the month that they were asked for?" said Nina McCoy, chairwoman of the Martin County Concerned Citizens advocacy group. "We need transparency more than we need anything, and that’s what the PSC tried to give us."
The advocacy group has been working with the Appalachian Citizens' Law Center to gather financial records and promote transparency within the district.
"I think lack of transparency is a sign that they’re still not willing to work with the public," McCoy said. "I think it’s a shame."
Jimmy Kerr, treasurer of the Martin County Water Board, said officials have taken steps to make sure the district does not miss any further deadlines.
"There was some miscommunication between our attorney and our (general manager), and it slipped through the cracks," Kerr said. "This board takes responsibility for that deadline being missed. It’s nobody's fault but ours, and it won’t happen again."
He said the district has made progress toward getting its finances in order, and that the PSC has been supportive of the water board and its mission to improve the county's drinking water system.
"I feel like they have our back, and they want us to succeed," Kerr said. "We have made a ton of progress financially and with our system."
At that time, the district had just applied for a 49.5 percent emergency rate increase, saying the district would collapse within 60 to 90 days without more money.
In March, the PSC granted a 28 percent rate hike, hoping the increased revenue would allow the district to make payroll, repair some of its failing infrastructure, and begin paying off its $800,000 in outstanding debt.
The PSC also ordered the district to send monthly reports of revenue and expenses, and requested information about how the district is monitoring employee purchases and a list of accounts payable. The district had failed to collect more than $600,000 in unpaid bills.
The district filed its first report May 4, more than two weeks past deadline.
Four days later, the PSC filed an order warning the district that if it continues to miss deadlines, the PSC will "proceed with any administrative means of enforcing its orders," including removing board members; seeking civil penalties; opening an investigation into the feasibility of a forced merger with a nearby utility; and seeking a court-appointed "receiver," an outside entity that would assume control of the district.
"We’re trying to get this utility back on track," said Andrew Melnykovych, a PSC spokesman. "We want to make sure they’re focused on moving forward."
The PSC also ordered the district to respond to a request for information filed by Martin County Concerned Citizens.
If the district fails to respond to the group's request, the PSC said it would issue a "show cause" order against the district and its commissioners individually. A show cause order would require the commissioners and the district to explain why they failed to comply with the request for information.
Trust between the district and many Martin County residents deteriorated to an all-time low this winter, when the district shut off water to thousands of residents after it failed to quickly repair frozen service lines and a broken intake pump to the treatment plant.
During the crisis, officials told customers through a Facebook post that the district was in dire financial shape, saying: "The financial condition is so serious, the Martin County Water District could fail, and we would not just lose water for days, but for an extended period of time."
Many residents reported going without running water for several days, and some went weeks without water.
At the time of the rate increase, though, some residents expressed hope that the PSC's involvement would lead to a better managed and more financially sustainable water system.
“I knew there was going to have to be a rate increase because obviously a lot of work needs to be done,” said BarbiAnn Maynard, a customer who has often spoke out against the district, at the time of the increase. “(The PSC) thought of the people and kept us in mind when they made their decision.”
In addition, several new members were appointed to the water board, which told Martin County residents and the PSC that they would promote transparency and accountability.
The records released May 4 show, among other things, that the district was more than $916,000 in debt as of March 31 of this year, with $624,000 of that more than 90 days past due.
It owes more than $200,000 to Zip Zone Express, Inc., a string of gas stations owned by prominent local businessman James H. Booth; more than $150,000 to Linda Sumpter, the district's accountant who is also the treasurer of Martin County; and more than $86,000 to the C.I. Thornburg Company, a waste water and water supply company.
The district said in its report that employees are now required to report and record all fuel purchases. PSC officials had previously called into question how well the district was monitoring employee purchases.
Melnykovych said the commission "is endeavoring to stay on top of them, and making sure they are making consistent progress."
"If you haven’t cleaned out your basement in 20 years, it's going to take you a lot longer than it would otherwise," Melnykovych said. "I would imagine that there are going to be some bumps along the way."