‘Extraordinary circumstances’ lead to massive rate increase at Kentucky water district

State regulators approved a temporary emergency rate increase Thursday for thousands of customers of a Floyd County water district, citing “extraordinary circumstances” that could have led the district to financial and operational collapse.

Customers of Southern Water and Sewer District will now pay a flat rate of $58.82 a month, regardless of their water usage. That’s about $17.42, or 42 percent, higher than a typical customer’s previous bill.

In a news release, the state Public Service Commission, which regulates most Kentucky utilities, said it reached the decision “reluctantly” after reviewing Southern’s dilapidated and dysfunctional metering system.

According to the PSC, the district has not tested its water meters for 10 years and has no stock of replacement meters.

At least 700 to 750 of the district’s meters register no usage at all, so those customers pay the minimum bill regardless of how much water they actually used, according to the PSC.

“That means that those customers who are paying based on metered use are, in effect, subsidizing the customers whose meters register no usage,” the PSC said.

Because the district’s meters are so outdated, a flat-rate bill is the most fair and effective option, the PSC said.

The district serves about 5,450 customers, and will implement its new rate increase starting Thursday.

Jeff Prater, chairman of the Southern Water and Sewer District’s board, said the district needs a influx of cash, but he was concerned that a flat-rate system may hurt low-income customers who purposely limit usage to keep their bills low.

“We definitely need a rate increase in order to address the cash flow shortage, but I was a bit surprised,” Prater said. “My concern would be there are some low income people who are low-usage customers who that may adversely effect.”

Southern officials have said for months the utility was on a path to collapse.

In its application for a rate increase, the district said it has been losing $40,000 to $50,000 a month, and has had to borrow money from the Floyd County Fiscal Court in order to operate.

State regulators in January turned down a previous rate increase request, saying the district had incomplete financial records and showed a “lack of candor” with PSC officials. Following the PSC’s decision, the district’s entire board of directors resigned.

In March, a new board of directors declared a state of financial emergency.

The PSC’s new order asks Southern to prioritize the replacement of its retail water meters and to issue a request for bids to replace its meters by July 15. The PSC also ordered the district to provide monthly updates on this effort.

Regulators also said they “strongly encourage” Southern officials to consider merging with another utility in order to stablize its finances and operations.

“Southern Water told the PSC it wants to try to improve the utility’s financial situation before considering a sale,” the PSC said. “But, given the district’s financial, managerial and operational problems, the best solution may be acquisition by a financially stable water system.”

The district, like others in Eastern Kentucky, has experienced high rates of water loss through aging lines and meters, which adds to its financial troubles.

Last year, the district lost more than half of the water it cleaned. The PSC estimated Southern loses about $386,000 a year because of its high rate of water loss.

In March, when the district’s new board voted to request the emergency rate increase, Floyd County Judge-Executive Robert Williams said “we’re not going to let Southern Water fail.”

“We’ve got the best and the brightest on this, and there is a path forward,” Williams said.

Prater said the district’s next scheduled meeting is June 24.

This story was originally published June 6, 2019 at 5:04 PM.