The Kentucky Public Service Commission completed its investigation into water loss at the Southern Water and Sewer District and 10 other utilities that have excessive water loss this month.

On Nov. 22, the PSC issued a report in that case that categorizes water loss as a symptom of operational, management and financial problems.

The report recommends that state legislators change laws that would set qualifications for water district managers, create regional water authorities that are not appointed by a fiscal court and give the PSC the ability to initiate rate cases for utilities that are struggling financially.

The report was issued with a PSC order directing 11 water utilities to take steps to address excessive water loss, including pursuing mergers with neighboring utilities and filing for rate increases to provide adequate funding. The PSC listed steps that all 11 of the utilities must take as well as specific measures for each utility.

In the order, the PSC reported that Southern Water’s leak adjustment policy must be revised because it “does not clearly establish the rate charged for water usage over the average.”

“The leak adjustment policy is among several other policies and procedures that require revision and any remedial action will be addressed by the Commission in Case No. 2019-00131,” the order states, referring to an alternative rate case that was recently approved by the PSC.

Southern Water has six months to file with the PSC a report noting remedial actions that are “performed or underway,” the order states.

The PSC started the investigation at Southern and the other districts in March, when it started examining the operations and finances of water utilities that had water loss rates of more than 35 percent. Southern’s water loss was 60 percent and PSC officials estimated it cost the district nearly $400,000 last year.

The PSC also launched an investigation in March against former Southern Water Manager Dean Hall, alleging he “willfully aided and abetted” violations of the law related to water testing, providing adequate water service and other things. The investigation uncovered that Southern Water paid “questionable” credit card payments at restaurants, a grocery store and a brewery

Hall, who denied those allegations, resigned from his position and the PSC dismissed the investigation.

In the Nov. 22, the PSC identified numerous problems that caused Southern Water and the 10 other water districts to become “troubled water systems.”

Those include inadequate oversight and management, poor financial and accounting practices that often leave utilities with limited knowledge of their budgetary needs, and a reluctance to raise rates, often due to outside pressure.

PSC recommended that Kentucky legislators make the following changes to state laws:

• Requiring water district general managers to have formal education, meet professional requirements to be outlined in statute, and to undergo annual trainings.

• Requiring water district, individually or jointly in cooperation with other districts or associations, to employ an engineer with a degree.

• Allowing the PSC to involuntarily merge distressed water utilities with others

• Allowing the PSC to initiate a rate case if a financial review of a utility indicates that higher rates are needed to provide operational and financial stability.

• Creating designated accounts for the purpose of reducing water loss, subject to a utility submitting and receiving PSC approval of its plan to reduce water loss.

• Establishing regional water boards, appointed by the governor, to oversee the management of regional and local water supply, infrastructure and resources. The boards could hire management staff and procure services that could be shared among utilities, creating economies of scale and reducing costs.

• Shifting the appointment of water district commissioners to the regional water boards, thus reducing local political pressure. Qualifications to serve as a member of a water district board should be strengthened and include holding a college degree.

To address the most prevalent problems, the PSC ordered all of the utilities to, within six months, to submit to the PSC plans to improve their operations and finances, plans to address water loss and improve business practices, and updated leak detection and water loss prevention manuals.

All of the utilities were ordered to begin using the PSC’s new water loss reporting form, which was finalized in a separate order also issued on Nov. 22.

The full report may be viewed online at, psc.ky.gov under case numbers 2019-00041 and 2018-00384.

This month, the PSC approved a rate increase for Southern Water, ruling that the district needs about $3.6 million annually to operate. In that case, the PSC set Southern Water’s flat rate at $49.46 $49.46 per month for residential customers and added a $5.25 surcharge for the meters, for a total bill of $54.71 per month.

The surcharge will allow the district to buy new radio read meters, and the PSC required that after new meters are installed, residential customers will be billed for the water they use, the PSC ordered. The new rates at that time will total $55.32 for customers who use 4,000 gallons of water per month, the order says. After meters are installed, customers whose monthly water usage is less than 4,000 gallons will receive a refund based on how much they paid under the flat rate, the PSC reported.

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