Consumers paid, then paid again

Kentucky American Water’s treatment plant in Owen County.
Kentucky American Water’s treatment plant in Owen County. Herald-Leader file photo

Five years ago, the private Kentucky American Water quit including local government fees on water bills then used the resulting revenue loss to justify charging Lexington households and businesses more for water.

It still galls that the public had to pay twice — once because it cost $700,000 a year more to outsource sewer and other billing to the Cincinnati Water Works, and again when the water company used its annual loss of $1.59 million from canceling the city contract to argue for a rate increase, an argument accepted by the Kentucky Public Service Commission.

The city recently brought the billing home, in hopes of eventually saving $400,000 a year. The transition to in-house billing also created six customer service jobs in Lexington. It appears to be a smart move by Mayor Jim Gray’s administration.

The city has paid the increased billing costs out of fees paid by consumers. That’s millions of dollars that could have gone into upgrading sanitary sewers, controlling flooding and supporting recycling if Kentucky American had not ended the billing agreement.

Most cities never face such a problem because most water utilities are owned by the public. Kentucky American is owned by an out-of-state corporation whose first loyalty is to generating profits for its shareholders. Privatized water, regrettably, is becoming more common.

It took the city 20 months to bring the new billing system on line, in contrast to the much shorter notice that Kentucky American provided in 2012 that it was ending the contract to bill for and collect sewer, landfill and water-quality management fees. Because sewer fees are based on water consumption, the pairing made sense.

The city’s collections plunged for several years after one monthly bill morphed into two. Collections rebounded after the government arranged to pay Kentucky American to cut off water service to customers who were delinquent on their city bills, although collections have not yet recovered to their former level and some delinquencies will never be collected.

In 2006,voters defeated a grassroots movement for the city to buy the utility from parent American Water. Since then, Lexington water customers have paid through the nose, with rate increases about every two years, in part to pay for a $164 million treatment plant in Owen County and 32 miles of pipeline. On last year’s day of peak demand, Sept.14, 2016, Kentucky American pumped 55,760,000 gallons, according to a filing with the PSC, or 62 percent of its production capacity of 90,000,000 gallons a day.

At a time when water consumption is in decline, American Water’s strategy is to capitalize on its excess capacity by buying smaller water utilities. Neglected infrastructure and the related high costs make selling out or partnering with a private company more attractive to elected and utility officials. The story of how Kentucky American has treated Lexington is also something for them to consider.