KY water district secretly spent $133,000 on its leaders. Now, rates are going up.
Commissioners of an Eastern Kentucky water district, which was just granted a rate increase by state regulators, illegally spent more than $133,000 of the district’s money over the past three years to pay for their own health insurance policies, according to a report from the Public Service Commission.
The commissioners of Knott County Water and Sewer District never voted on or publicly discussed the health insurance policies, and unsuccessfully petitioned the PSC to keep the policies secret during its bid for a rate increase.
PSC regulators encouraged the district to try and recoup the money spent on those policies from the commissioners, and advised the district that the action would justify removing the commissioners from office.
In the same order, the PSC granted the district’s request for a rate increase. It ordered a 45 percent rate hike immediately, and another 15 percent increase a year from now.
The typical resident who uses 3,500 gallons of water per month will see their monthly bill increase from $26.70 to $38.89 during the first increase, then to $44.73 next year.
Knott County will join several Eastern Kentucky districts that have already implemented or been granted steep rate increases in recent years. Customers of the Martin County Water District saw their rates go up 44 percent over the past two years, and Southern Water and Sewer District, in Floyd County, saw rates go up by 42 percent last year.
The increases have prompted an outcry from state lawmakers who represent the area.
In a news release Tuesday, Rep. Angie Hatton, D-Whitesburg, said she would strengthen her House Bill 126, which is aimed at protecting water customers from steep rate hikes.
Hatton’s bill takes a three-pronged approach: it would give the PSC the authority to implement rate reviews every five years if the district does not pursue its own rate review; require the PSC to consider affordability when deciding whether to approve rate increases; and require utilities to perform a management audit before pursuing a rate hike.
“Together, these three things will go a long way toward making sure that customers are not hit with massive increases like we saw just last week in Knott County,” Hatton said.
The PSC has repeatedly criticized utilities for going many years without pursuing rate increases. In some cases, the failure to implement gradual, small rate increases leads to jumps of more than 30 percent in a single year.
“Like anything else, if you ignore a problem long enough, it will eventually cost you,”Hatton said. “In this situation, unfortunately, the customers are the ones who pay the full price. They’re left with inferior service and, ultimately, sky-high rate increases to make up the difference.”
Jared Salmons, general manager of the Knott County Water and Sewer District, said he believes the district’s finances to be stable, and its infrastructure to be in good shape, but wanted to prevent the district from sliding into the types of crises faced by nearby water districts.
“In some of the cases in Eastern Kentucky they’ve waited ‘til they get financially desperate,” Salmons said. “We didn’t get to that point, but the rate increase was pretty significant.”
Knott County had not applied for a comprehensive rate increase since 2003, according to the PSC.
Salmons declined to comment on the commissioner’s health insurance policies, and the commissioners did not respond to a request for comment.
State regulators were more critical of the district’s financial status, calling it “dire” in a news release issued following its order to increase rates.
“The PSC also found that, despite the utility’s dire financial condition, the five members then on the district’s board of commissioners had in 2017 secretly and illegally granted themselves full health insurance benefits, costing the district more than $133,000 over the last three years,” the PSC said. “Furthermore, when the PSC began inquiring about the health insurance benefits, Knott County Water sought to shield the information from public disclosure during the rate case. The PSC denied the request.”
According to the PSC’s order, three commissioners received benefits that cost the district $9,000 or more in each of the past three years.
The board’s chairman, David Smith, spent an average of about $15,000 each year to pay for his policy.
Every commissioner except one had also received a $6,000 annual salary, which is allowed under state law, for their work on the board. In 2019, only one commissioner, Ricky McDaniel, did not receive benefits in addition to his regular salary. McDaniel took a $2,700 salary, while every other member took $6,000.
When considering the value of their salaries and benefits, the average hourly rate for the five commissioners was $630 in 2017, $696 in 2018, and $1,054 in 2019, according to the PSC.
During 2014, 2016, 2017 and 2018, the district faced financial losses that contributed to its need for a rate increase.
In addition, the PSC said that the commissioners made an active effort to shield these benefits from public view, both during the PSC case and while they were approving the benefits.
“It is clear that the Knott District Board of Commissioners made every effort to prevent disclosure of their actions to the public,” the PSC said in the order. “Further, throughout the proceedings in the instant case, Knott District continued to try and prevent disclosure of their actions and the value of the benefits they were receiving.”
Salmons said the district had requested that its rate increase be spread out over three years, rather than two, to ease the burden on ratepayers.
Knott County has an unemployment rate of 6.6 percent, compared to the statewide 3.9 percent, and a poverty rate that is double that of Kentucky’s — about 32 percent of Knott County residents live in poverty, according to U.S. Census data.
PSC officials said stretching the rate increase out over three years was not possible “due to the utility’s dire financial condition.”
This story was originally published February 4, 2020 at 1:44 PM.