Attorney General calls for takeover of struggling Eastern Kentucky water district

Attorney General Andy Beshear called for the takeover of an Eastern Kentucky water district plagued with reports of poor water quality and reliability, where residents have gone days without running water multiple times this year.

Beshear’s Office of Rate Intervention released a report Thursday that showed how the Martin County Water District has repeatedly failed to take steps to improve its finances and operations, despite specific recommendations from state regulators and an independent auditor.

Those failures led the district to crisis this year. In January, thousands of people in Martin County went without running water for days, and long outages have continued to plague some customers.

Other residents have said the water often comes out the tap dirty and discolored. Many of the district’s customers do not believe the water is safe to drink. Instead, they spend upwards of $50 a month on bottled water for drinking, cooking and making coffee.

“The District has exhibited a historic pattern of rejecting sound advice to the detriment of its customers,” the Attorney General’s report reads.

Beshear’s office recommended that the Public Service Commission, the state agency that regulates most Kentucky utilities, bring an action in Franklin County Circuit Court to force the district into “receivership,” which would transfer control of the district to an outside corporation or utility.

Jimmy Kerr, chairman of the Martin County Water Board, said he does not necessarily support receivership because an outside utility would be more likely to increase rates at a level many customers couldn’t afford.

Kerr also said the district is in the process of finding outside management to run day-to-day operations, which would help address managerial issues while also allowing the district to keep some independent control.

“With receivership, there’s a lot of unknowns that scares me for our community,” Kerr said. “I think the management company route is better than the receivership route.”

Nina McCoy, chair of the Martin County Concerned Citizens activist group, which requested Beshear’s investigation, said receivership could pose some problems because “I always worry about any privatization of water where the citizens are not involved in the decisions.”

“We really need to spend the money that we have coming to us in the right way. I’m glad for any help with that,” McCoy said, but “we do have a board right now that looks like it is caring for the citizens.”

“The citizens have been trying for years to be a part of this process, and just recently have gotten our foot in the door, and we just don’t want this to slam the citizens out,” she said.

McCoy said she hopes the release of the report could lead Beshear and his office to meet with residents concerned about the district’s financial and operational future.

The district serves about 3,500 homes and businesses in Martin County, and has been “plagued with management issues for more than two decades,” according to the report.

Since a massive coal slurry spill in 2000, when millions of gallons of toxic coal sludge poured into the county’s waterways, the Public Service Commission has filed multiple investigations to review district’s financial and operational procedures.

Two of those investigations included “road maps” designed to help the district improve its infrastructure and financial status, but district officials failed to follow most of those recommendations.

In 2007, the district received a third “road map” from an independent audit, but district officials again failed to implement all but one of its recommendations.

Failure to take those steps, along with other managerial shortfalls, has caused the district’s infrastructure to deteriorate over time, and has allowed its finances to falter as well.

Major infrastructure breaks, like the one in January that left many struggling to bathe and find adequate drinking water, would not have proved so catastrophic to districts who have followed better management practices over the years, according to the report.

The district recently got approval for a rate increase and surcharge that would, if both are implemented, increase customers’ bills by about 44 percent.

State regulators also recently ordered the district to find new management to run its day-to-day operations, but Beshear’s office contends receivership is necessary to ensure that $8 million in current state and federal funded projects “are completed and not mishandled by the water district.”

Kerr said the district is in the process of finding outside management.

Many Eastern Kentucky water districts have reported issues similar to those in Martin County, including long outages and reports of poor quality. The Herald-Leader published a series of stories this month, called Stirring the Waters, that showed how the lack of reliable, clean drinking water impacts daily life for many residents of Central Appalachia.

Beshear’s Department of Criminal Investigations has an ongoing investigation into some claims of financial mismanagement, including that certain Martin County residents do not pay for the water they receive. Beshear’s office will present any possible criminal findings to the Martin County Commonwealth’s Attorney.

“Despite being given at least three virtual road maps of actions required to set the district on a better operational and financial footing ... it appears no effort has been made to comply with those recommendations,” according to the report. “Receivership represents the most expeditious path forward to deliver consistently reliable, potable water to the citizens of Martin County.”

Will Wright is a corps member with Report for America, a national service program made possible in rural Appalachia with support from the Galloway Family Foundation. Reach him at 859-270-9760, @HLWright.