PSC investigates Southern water district manager

Prestonsburg attorney Ned Pillersdorf claims Southern Water & Sewer District Manager Dean Hall is a “scapegoat” in a Kentucky Public Service Commission case in which Hall is accused of violating state laws and regulations.

The PSC launched an investigation into Hall that is separate from another investigation it launched last week into Southern Water and nine other utilities with high water loss rates. 

The PSC alleges that Hall “willfully aided and abetted” violations of a law requiring the district to test meters every 10 years, failed to provide “adequate and safe service due to water loss,” and failed to require fire departments to file quarterly usage reports for free water. The order also questions whether Hall provided water to customers without charging them for the service.

Pillersdorf notified the PSC Monday that he is representing Hall in the case.

“Unfortunately, he’s been made the scapegoat for disastrous financial decisions that the board made, and, actually, I think he’s been heroic throughout this crisis in keeping the water system functioning,” Pillersdorf said.

In the case, the PSC refers to testimony Hall supplied gave in January, as well as the district’s 2018 annual report, which was filed on March 6 and other documents the district has provided over the years. The PSC notes the investigation was started because of a rate increase application Southern previously filed which was denied recently. 

During the rate case, the PSC learned that Southern Water received loans without PSC approval, had a 60 percent water loss rate and didn’t comply with its tariff provisions that require fire department to file quarterly water usage reports or be assessed a penalty for not filing those reports. 

Referring to the hearing held in that case in January, the PSC order states, “In the course of the hearing, the commission identified additional issues pertaining to failure to comply with meter testing regulations and allegations that customers were not being billed for the water they consumed.”

It notes that the PSC was notified about the recent resignations of all Southern commissioners, and says that Hall remains employed as the manager. He has worked for Southern for 25 years and has served as manager for five years. 

The PSC alleges that Hall “willfully aided and abetted” violations of a law requiring the district to test small meters every 10 years, reporting that Hall said the lack of cash flow prevented meter testing and that the district was seeking funding for radio-read meters. When the district was cited for that issue in 2017, Hall said he would begin testing meters the following year, but failed to do so, the PSC reported. 

The PSC alleges that Hall failed to provide “adequate and safe service due to water loss,” reporting that the district’s water loss rate of 61.5 percent in September 2018, 61.6 percent in October 2018 and 71 percent in November 2018. 

The PSC claims in the case that Hall was “directed to formulate and implement a written plan” to reduce water loss in 2017, 2018 and this year. Hall attributed the water loss to aging lines, theft and the region’s terrain. 

The PSC noted that “despite assurances” by Hall, Southern Water didn’t develop a leak detection operating procedure until the Kentucky Rural Water Association created it in December 2018. 

“The commission is particularly concerned that Southern District is operating at a deficit, in large part because approximately 50 percent of water produced and distributed by Southern District does not produce revenue,” the PSC wrote. “Due to the failure to timely address significant water loss, Southern District incurs expenses to purchase and treat the water that is subsequently unaccounted for. Because of excessive water loss, Southern District experiences lost revenues of approximately $386,000 annually.

The PSC also questions whether Hall traded free water for services. 

It noted that Turner E. Campbell, former superintendent of Prestonsburg Utilities Commission, testified that PCUC found 40 customers in the Harold and Betsy Layne areas that were receiving free water services due to straight hookups or because meters were unread and unbilled. In questioning that issue, the PSC also cites questions from the hearing about Southern Water providing water to businesses in exchange for services and testimony from a KRWA representative who referred to tests he conducted that could show meters were not being read. In the case, the PSC asks Hall to provide copies of all documents that evidence Champs’ Country Cooking’s water usage since 2015 and all payments received for water from that restaurant in that time. Pillersdorf said Hall denies allegations that he traded water for services.

The PSC also alleged that Hall failed to obtain prior approval before obtaining a two-year $41,355 loan from Citizens National Bank in 2015 for an excavator. The loan was set to expire in 2017, the PSC reported, but Hall extended the maturity date for the loan to August 2019, at a higher interest rate. The PSC alleges that the loan and the change in terms agreement “create the appearance that Mr. Hall had an improper intent” in regards to complying with a state law that prohibits utilities from getting a loan that spans more than two yeas without approval from the PSC. 

All former board members recently resigned and were replaced by ne members that have been working to fix problems at Southern Water. During a special meeting last week, the commission voted to declare a financial emergency, seek help from the fiscal court and take steps to file an emergency rate increase application with the PSC.

Discussions at that meeting centered around the district’s 60 percent water loss, and Hall told commission members that the district was “poorly constructed from the beginning.”

“They’ve been a 40 to 50 percent water loss from this utility since day one,” he said. “So don’t sit and think that in the last four and five years that we’ve automatically went to pieces with high water loss. This has been a problem since this utility was constructed. It was poorly constructed in the beginning, and the lines were in a bad place. I’m not making no excuses, but people have been fighting this for 50 years and this is why we are where we are.” 

He blamed the district’s financial problems on the asset transfer agreement with Prestonsburg, saying that “water loss never put us in this position.” 

Pillersdorf referenced testimony given by former Southern District Commission Chairperson Paula Johnson, who reported that 99 percent of Floyd County residents have access to water. He said Southern Water would not be in a financial crisis if prior fiscal courts hadn’t expanded water services to 99 percent of the county and if previous commissioners had not approved transferring 1,100 of the district’s “best paying customers” to Prestonsburg City Utilities. 

Pillersdorf said Hall does not make the economic decisions for the commission.

By Mary Meadows
Floyd County Chronicle and Times