A representative from Kentucky American Water in Lexington formally announced the utility’s interest in buying the Southern Water and Sewer District on Monday.
Jimmy Keeton, director of governmental affairs for Kentucky American Water, told commission members that the utility wants to explore the possibility of buying Southern Water.
“We are interested in Southern Water and Sewer,” he said. “And what we would like to do, as you’re getting your arms around everything, and you’re trying to understand all of your finances and everything that you have, we would like the opportunity to get some information from you so that we can take a look at it to see if we want to make an offer on the system.”
He said he wasn’t asking the commission to bind itself to any deal at this point.
Southern Water Chairman Jeff Prater asked how Kentucky American would assess the district’s value.
“We’ll take a, really, look at everything,” Keeton said. “What I do is I get a look at audited financials and we take those back to our financial folks. They run them through our models, and then we come back to the board with what believe we can do. Our acquisitions that we’ve done in the past have all the employees; we take in all of the employees.”
Southern Water attorney Steven Bailey asked Keeton to confirm whether any information provided by the district would remain “in-house” or provided to another firm for evaluation.
Keeton told him the work will all be done in-house.
“We know at this particular time, as a new board, and as you’re trying to understand everything and getting your arms around everything, we felt like this was a good time to do that, as you’re making various decisions with regard to the district,” Keeton said.
Commissioner Rick Roberts explained that the PSC recently approved a flat rate for Southern Water, and is yet to know how that rate will impact to district financially.
“To say you’re not an option, would be false, but I just think right now we need to see what, how our finances are going to impact us and change Southern Water with the flat rate increase. And, of course, you know, we’ve got to get satellite meters in place, and that’ll be an expense, so, we’ve got some things hanging over us,” Roberts said. “Good and not so good.”
Keeton told him he understands the situation.
“I don’t want to pressure you in any way, shape, form or fashion because I know you’ve got a big decision on your hands. You’re dealing with a lot,” he said.
Prater said Southern Water doesn’t know what the district’s revenue will be because of the recently-implemented flat rate issued by the PSC.
“It depends on how you do the valuation,” Prater said. “If its asset valuation, you know, it’s going to have to include a revenue component, and at this point, because of the commission’s ruling, we can’t even tell you what the revenue’s going to be until the meters are changed out and a permanent rate is established.”
He told Keeton that information about Southern Water’s revenue is already public record. Keeton said Kentucky American Water would be looking at Southern Water’s debt and taking on all of the district’s employees.
“We’re out of Lexington … There’s no way, of course, that we’d want to operate something that far away. You’d want to have local people, local payment options, local folks doing the work and living in the community and working in the community,” Keeton said.
He said Kentucky American Water, which serves residents in 14 central Kentucky counties, has recently acquired the Eastern Rockcastle Water Association in Rockcastle County and a system in the City of North Middletown, and both of those systems had hundreds of customers — smaller than the 5,400 customers at Southern Water.
“We’re talking to a lot of people throughout the state, because our goal is we want to grow. We want to grow our footprint,” he said.
He emphasized that the company would hire local residents.
“So, if we come, again, this way, it’s going to be local folks. It’s going to be here,” he said. “Basically what’s going to happen is you’re going to have the equipment that you need, your employees will be working. If you have to have contractors, we’ll have contractors. We’ll do what needs to be done, just like you’re trying to do now.”
He said he understand the “mountain” that Southern officials are dealing with.
“But what we’re looking at is just that opportunity,” he said. “Again, we understand, you’ve got a mountain, and I get that; completely get it. We just wanted to let you know that we are interested and as you are weighing your options, we hope that you will allow us to be one of those options that you take a look at before you make your final decision.”
Prater said that “all options are on the table” at Southern Water. He said if a sale is considered, the district would have to hire a company that deals with asset sales, and that cost “could be quite high.”
“I mean, it’s not off the table. It’s something that we, I know the board, and I know the others would consider it under certain circumstances, but—
Roberts interrupted him, telling Keeton that the proposal is premature.
“I’m like Jeff, we have to consider that as an option, but we have do what we think is the best for the 5,300 customers of the water district. We represent those people. So we need to carefully see what we can maybe do in house. Options are options. It’s just kind of premature until we see what financially how we are going to do.”
Keeton said he understands the situation but just wanted to come to make sure Southern Water knows the company is interested.
He offered to let Southern Water officials tour Kentucky American Water operations.
During the meeting, the commission approved the financial report, showing the district has $26.9 million in assets and $6 million in debt.
CPA Jeff Reed reported that the district’s net income, before depreciation, was $38,000, but after depreciation expenses were calculated, the district ended May with a loss of $51,400.
The commission voted unanimously to accept a bid package prepared by Utility Management Group for the purchase of radio read meters for the district.
Don Compton of UMG said the project will cost more than $1 million. The bid package seeks meters from companies that will provide financing for Southern Water, he reported.