Water rate increases keep coming

Ten years ago, more than 20,000 Lexington residents petitioned for a public vote on whether the city should buy the local waterworks, through eminent domain if necessary.

Rarely does a city of this size have a private, for-profit water utility. But the next year, voters rejected public ownership. Lexington households have been paying a high price ever since.

The average residential bill from Kentucky American Water climbed 60 percent from 2007 to $34.90 a month in 2014, while the cost of 1,000 gallons of water doubled. People are paying more for less.

And if Kentucky American has its way they will soon pay even more. It recently filed for another rate increase, the fourth in eight years.

The company operates under a 20-year franchise agreement with the city, which has expired and is being renegotiated. Lexington is shortening the term to five years.

The city can be expected to continue to contest rate increases before the Kentucky Public Service Commission. But so far it is not using the franchise negotiations to try to protect consumers from rate hikes or from paying for Kentucky American's acquisitions and rehabilitations of other municipal water and sewer systems, most recently Millersburg in 2014. KAW has customers in 11 counties.

Water consumption is declining, thanks largely to more efficient plumbing fixtures mandated by Congress in 1992, and efficiency standards for appliances that save electricity and water.

KAW's corporate parent, American Water, has an announced strategy of rate increases, acquisitions and management contracts to shore up revenue in the face of declining demand.

In October, KAW and the Kentucky League of Cities held a meeting for municipal officials. It was billed as, "Is there a disaster ready to happen to your city?" (Subtext: "Offload your disaster — and the costs of repairing your decaying infrastructure — onto Lexington's ratepayers.")

Kentucky American has yet to say how much it will seek in the upcoming increase to cover the $15 million cost of replacing a 100-year-old filtration plant on Richmond Road.

The company will also seek higher rates to compensate for declining demand.

Water bills still bear the heavy cost of building a $164 million treatment plant in Owen County and 31 miles of pipeline that started operating in 2010. Kentucky American poached the idea from a consortium of local governments that was working on regional approaches to water supply. The regional effort never resurfaced after that torpedoing.

Over the last seven years, Kentucky American's daily production has averaged 45 percent of its current 90 million-gallons-a-day capacity.

Opponents of the Owen County plant and pipeline say that proves they were right. They argued unsuccessfully before the PSC that future demand failed to justify the cost of an additional 20 million-gallons-a-day of capacity.

But KAW says the declining demand was factored into its projections and that the numbers are turning out just as predicted.

KAW revenue from residential customers is up 73 percent since 2007 to $48 million in 2014.

Kentucky American's sales pitch must be appealing to local officials struggling to manage water and sewer systems in need of overhaul. KAW has capable people at its helm. But their job — indeed, their fiduciary duty — is to maximize the transfer of wealth from the Bluegrass to corporate headquarters in New Jersey for distribution to stockholders. And they've been succeeding at it very well.

Local officials, on the other hand, and the PSC have a duty to heed the lessons of the last decade and protect the economic interests of their constituents and Kentucky consumers.