Southern approves spending $1.2 million for new meters

James Baker of RG3 displays a meter his company offers to the Southern Water and Sewer District in July. Last week, the Southern Water commission voted to hire his company for $1.2 million.

The Southern Water and Sewer District took steps to replace all of its old meters with new radio-read meters last week, agreeing to spend more than $1.29 million on the project, while the Kentucky Attorney General’s Office of Rate Intervention asked the Kentucky Public Service Commission to tread lightly in the district’s pending rate case.

During a special meeting on Aug. 29, the commission voted unanimously to hire RG3, which submitted a bid of more than $1.29 million to replace 5,500 meters in the district. Officials noted that the hiring is contingent on approval from the PSC.

On Aug. 15, the PSC issued a staff report in a case in which the water district is seeking an increase in rates. If the recommendations in that staff report are adopted by the PSC, then the water district will have a monthly surcharge of $5.25 that customers will pay for up to five years to replace water meters in the district. Citing an abundance of water loss in the district, the PSC staff report suggests that the PSC implement a flat rate of $55.17 in the district until customer meters are replaced. The staff report also suggested that a meter replacement program start as soon as possible.

That recommendation has not yet been adopted by the PSC, however, and Justin McNeil, with the Attorney General’s Office of Rate Intervention, issued that office’s recommendations on Friday.

McNeil agreed that Southern Water should install new meters as soon as possible, but he recommended that the PSC not adopt all recommendations made in the staff report, asking the agency, instead, to give Southern Water gradual increase. McNeil reported that his office is “concerned with the overall level of the revenue requirement” recommended by PSC staff, saying that if the rates are approved, they “may well be the highest retail water rates” in Kentucky.

“Approving such high rates in addition to recommending a Meter Replacement Surcharge compounds the impact on Southern’s customers, who are already paying for the mismanagement, poor planning and neglect of the system show by past district leadership,” McNeil wrote.

He suggests that the minimum bill of $33.34 proposed by Southern Water “unfairly punishes low users and would produce rate shock among all retail customers who would have no way to reduce their bill until after they have used 2,000 galloons.”

McNeil agreed with other aspects of the staff report, including the removal of attorney fees and $54,800 in miscellaneous expenses, with some of it dubbed as “questionable,”  from the district’s revenue requirements. He also urged the PSC to “take a stronger stance” on those charges which PSC staff reported were not necessary to provide water to Southern customers. McNeil cited another case, in which the PSC denied a proposed tariff revision by quoting an attorney general’s opinion that noted using water fees for “any purpose other than those for which the district was created is ... illegal.”

“The Commission should continue to adhere to this precedent,” McNeil wrote. “With an understanding that Southern has seen substantial turnover in the last year and that certain ‘bad actors’ are no longer involved with the District, the Commission should nevertheless remind the District that future expenditures which fall outside the provision of water services may require personal reimbursement from those individuals at the District who incurred such costs.”

McNeil asked the PSC to require Southern Water to file a Certificate of Public Convenience and Necessity in order to get approval for the meter replacement program.

“The Attorney General remains concerned that the District is not moving fast enough in implementing new meters, which have been identified as the most important and cost effective way to ensure sufficient revenue, which in turn would help address the long-standing water loss issues,” McNeil wrote.

He also called the recommendation that customers pay a $5.25 meter replacement surcharge for five years or until Southern pays for the new meters “somewhat troubling given the District’s past performance,” suggesting that customers could be forced to pay the surcharge for five years.  

“Southern customers face these rising costs amid uncertainity, with little clarity as to when they will receive new meters, and the associated benefits of those meters,” McNeil wrote. “The Attorney General has grave concerns that Southern’s long-term viability as a standalone functioning public utility still hangs in the balance. Its history of mismanagement is still apparent in the test year expenses, and the new leadership had yet to charge a clear course toward sustainability.”

PSC approval is required for the meter replacement project. Southern Water Attorney Steven Bailey said he will file an application with the PSC.

RG3 is among seven companies that submitted bids for the project in July, and it’s among five companies that were recommended by officials at Utility Management Group, which manages the water district.

RG3’s bid was not the lowest bid submitted for the meter replacement project.

Allied Utility Solutions submitted a bid of $1.15 million, as did Consolidated Pipe & Supply, but Southern Water commissioners voted for RG3 instead, saying they believed the company would do a better job installing the meters.

Grondall Potter of UMG reported that the Department for Rural Development may be able to provide a loan to Southern Water for the meter replacement project, but he said the length of the loan would have to be 40 years.

Commissioners are expected to review and/or approve a financing package from RG3 at a future meeting.

At the meeting, officials reported improvements in Southern Water’s finances. CPA Jeff reported reported the district had $147,300 in the bank, and that the district cleared $70,000 in July, once expenses were paid. Officials reported that the district owes two more paychecks to former district Manager Dean Hall, who had more than 600 hours in vacation time when he resigned earlier this year. His salary was around $38 per hour, officials said.

The commission agreed to renew its sixth month contract with UMG at the meeting.

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