An Eastern Kentucky water district declared a state of emergency Thursday as limited cash flow has left it struggling to make payroll.
The board of Southern Water and Sewer District, which serves about 5,400 customers in Floyd and Knott counties, is possibly just weeks away from not having enough cash to pay its employees, board members said.
The district’s emergency declaration comes just days after state regulators opened a formal investigation into its general manager, Dean Hall, for possible violations of state laws and regulations, including that Hall may have knowingly provided free water to some customers.
Hall has denied that allegation.
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The board unanimously declared the state of emergency Thursday and approved efforts to file an emergency rate increase request with the Kentucky Public Service Commission and seek help from the Floyd County Fiscal Court.
“The cash flow is at a critical situation,” said Jeff Prater, Southern’s board chairman. “We’re going to have issues making payroll here in a few days, and if people don’t get paid, they’re not gonna work.”
Earlier this year, state regulators at the PSC denied a 33 percent rate increase request from Southern, citing poor record keeping and “a lack of candor” during the application process.
Southern’s previous board and its chairman all resigned following that decision. Floyd County Judge-Executive Robert Williams appointed the new board about six weeks ago.
Prater said the district will work with the Kentucky Rural Water Association to develop an emergency rate increase request, which they will submit to the PSC. How much the district will need to increase rates is unclear.
The approval process could take months to complete, though, and the district may not be able to survive that long, he said.
Board members voted to ask the Floyd County Fiscal Court for help in the interim, but Prater said he had no estimate for how much money the district might need.
“We’re not going to let Southern Water fail,” said Williams. “We’ve got the best and the brightest on this, and there is a path forward.”
Like many water districts in Eastern Kentucky, Southern has long been plagued with a high water loss rate. According to documents filed with the PSC, Southern lost more than half of the water it produced last year to faulty meters, leaking lines and theft. In November, the district lost more than 70 percent of the water it treated.
That loss costs the district about $386,000 a year, according to the PSC.
In neighboring Martin County, officials have said a high rate of water loss there has contributed to financial woes, leaving the county’s water district struggling to make payroll and perform routine maintenance.
In its ongoing investigation, the PSC has alleged Hall may have neglected to address the district’s high water loss rate for years. Other allegations against Hall include that he may have neglected to follow through with required meter testing; that he unlawfully allowed fire departments to forgo filing quarterly usage reports; and that he may have knowingly provided free water to about 40 customers.
The investigation will also address an allegation that Hall unlawfully executed two loans on Southern’s behalf to pay for a John Deere excavator without required PSC approval.
Hall said the district’s lack of funding and limited staffing leaves him unable to make any substantial progress on water loss.
Many of the district’s water lines were poorly constructed in the first place, he said.
Hall blames the brunt of the district’s financial hardships on a 2017 transfer of about 1,160 customers to the city of Prestonburg.
The district cited this transfer in its previous rate increase request, saying it “severely harmed the district’s financial situation.”
The transfer resulted from Southern’s inability to operate water treatment plants in the area. When Prestonsburg took over the waste water systems it also got water customers in those areas.
“You’re broke because of the transfer of assets, plain and simple,” Hall said.
According to an article in the Floyd County Chronicle and Times, PSC commissioners said they regretted approving the transfer.
Williams said he hopes to have a discussion Tuesday with the Floyd County Fiscal Court about plans to help the district survive as it waits for a possible emergency rate increase.
“We’re talking about people’s drinking water,” Roberts said. “We’ll definitely step up and do what we need to do to keep the water flowing.”