Southern Water customers could receive a refund and pay for new water meters for the district, if the Kentucky Public Service Commission approves recommendations made by staff members last week.

On Aug. 15, PSC staff Ariel Miller, Travis Leach and Eddie Beavers issued a staff report in the rate increase application that Southern Water filed with the PSC earlier this year, making suggestions about how the PSC should rule in this case. 

The PSC will consider these recommendations, along with any comments made by the Kentucky Attorney General’s Office of Rate Intervention and Southern Water before making a final decision. 

Southern Water filed its application on April 19, seeking a rate increase of 32.3 percent, which would increase the average customer bill by about $13.76 monthly, or from $42.60 to $56.36, the PSC reported. 

In its application, Southern Water reported that it needed the rate increase to raise about $943,000 in additional revenues. The district reported an overall revenue requirement of more than $3.95 million, but PSC staff determined the requirement to be less than that, or about $3.68 million.

The recommendation includes a suggestion that Southern Water residential customers pay a flat rate of $55.17 per month until the district replaces water meters at their residence. After the meters are replaced, those customers will them pay for the amount of water used. That flat rate is $3.65 less than the flat rate that the PSC approved earlier this year because of the district’s financial problems, and in Thursday’s filing, PSC staff suggests that Southern Water refund customers for the overpayment. 

The filing specifically asks the district to explain how it will refund customers for the overcollection that occurred as a result of the interim flat rate.

Suggested rate changes 

In its application, Southern Water proposes that customers pay a minimum bill of $33.34 for the first 2,000 gallons of water used, and $11.51 per 1,000 gallons for customers that use more than 2,000 gallons.

In Thursday’s filing, however, PSC staff recommended a different structure for Southern Water bills in the future, suggesting, instead, that customers pay a $10.61 monthly customer charge, and rates of $15.54 for the first 2,000 gallons used and $8.69 per 1,000 gallons therafter. If that structure is adopted, the minimum bills would be about $26 for Southern Water customers who use 2,000 gallons. 

But those rates would not immediately begin, if the PSC accepts the recommendations of this filing. In it, PSC staff recommended a flat rate of $55.17 per month for all residential customers and it also recommends that, for up to five years, Southern Water customers also pay a monthly surcharge of $5.25 so that the district can buy new meters. PSC staff suggested a meter replacement surcharge of $5.25 per customer for five years, or until Southern Water pays off the cost for new meters, “whichever comes first,” the filing says.

The filing explains that there were discussions about the need to impose a surcharge on water bills so Southern Water can replace its old meters. 

“During those discussions, Southern District representatives conveyed to Staff that the current flat rate being charged for residential service should be reduced by the amount of the surcharge,” the filing says. “Staff is unable to recommend this reduction to the Commission because it would result in Southern District losing approximately $346,500 annually in base rate revenues, which would further contribute to Southern District’s financial distress.” 

If that monthly surcharge is approved, as suggested, the minimum bill would be about $31.40 — which is less than the $33.34 sought by Southern Water and more than the $25.20 Southern Water customers were paying on minimum bills earlier this year. 

The staff recommendation, if approved by the commission, would give Southern Water more money from it’s wholesale customers, which are the cities of Hindman and Wheelwright and the Knott County Water District. 

Those entities currently buy water from Southern for between $3.02 and $3.10 per 1,000 gallons, and Southern Water sought to increase that by about $1. PSC staff suggests, instead, charging all wholesale customers $4.46 per 1,000. 

On Friday, Southern Water filed copies of bids it received for meter replacements: $1.15 million from Allied Utility Solutions, $1.45 million from NECCO, $1.4 million from United Systems & Software, $1.29 million from RG3, $1.16 million from Consolidated Pipe & Supply, $1.65 million from CI Thornburg and $1.73 million from Core & Main.

Staff cuts revenue requirement 

In calculating Southern Water’s expenses in 2018 — the test year used in the rate increase application — the PSC staff recommended cutting $640,000 in expenses in 2018, calling some of them “unreasonable” and “questionable.”

If the PSC accepts the recommendations, it would reduce the amount of revenue the district seeks in the rate increase application. 

The staff recommended cutting $461,600 from Southern’s list of expenses for the cost of water, electricity and chemicals that Southern Water used in 2018 to treat water that was lost. 

The filing reports that Southern Water’s water loss was 62.52 percent for the year, or 47.62 percent above the amount permitted, so staff recommended removing expenses related to buying, pumping and treating the water that was lost. 

The PSC staff also reduced a portion of the revenues Southern Water requested in its application after finding that employee pensions and benefits at the district are “unreasonable.” 

“During the test year, Southern District’s employees paid $25 per pay period for single health insurance coverage and $50 per pay period for family or dependent care coverage … In this case, Staff has found that the structure of the health care benefits paid for by Southern District in the test period does not meet the criteria for market competitiveness and is therefore unreasonable,” the filing states. 

The staff recommended a reduction of about $112,000 in that portion of Southern’s expenses.  

PSC also suggest removing most of the miscellaneous expenses that Southern Water reported in 2018. The filing says the district reported $57,547 in miscellaneous expenses in 2018, and PSC staff suggested the removal of all but $2,791 of them. 

The filing says that staff found miscellaneous expenses totaling $33,193 were “questionable and were not necessary for the provision of water service” to Southern Water’s customers, and that $5,719 in “health care reimbursements” and $14,000 in late fees and overdrafts charges were also unreasonable expenses reported by the district. 

They also suggested cutting more than $11,600 paid in 2018 to former Southern Water Attorney Tyler Green from the district’s list of expenses. The filing reports that invoices for fees paid to Green were not detailed and the district’s meeting minutes did not state whether Green was present for meetings. 

Southern Water is required to file written comments about the report within 14 days. 

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