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WEST VIRGINIA-AMERICAN WATER TRYING TO SOAK UP PSDS
Publication: THE CHARLESTON GAZETTE
Published: Sunday, February 11, 1996
Byline: Robert J. Byers
Amy Swann will never forget the day she stood before a particular public service district board of directors and asked for the resignation of one of its oldest members.
"He slowly raised this crooked finger up to me and said in a scratchy voice, 'Little lady, you're not gonna tell me '" she recalled.
Swann is the director of the state Public Service Commission's public service district division.
The PSC regulates PSDs, which are small local entities that operate water and sewer services. There are about 250 PSDs across West Virginia.
Some want to keep it that way, while others feel PSDs, occasionally corrupt and often as good only as their next grant, are the wave of the past.
Looking at the statistics - 555,000 state residents are wracked with drinking water quality or quantity problems - one might think West Virginia is an arid, parched land rather than one of mountain streams and rushing rivers.
But, as anyone forced to replace water pipes following the recent freeze knows, water service can cost a lot of money. So when you're talking miles of water lines, you're talking miles of dollars.
Who has that kind of money? Certainly not one of the poorest states in the union. Definitely not the budget-slashing federal government.
Enter West Virginia-American Water Co.
"When it comes to water, West Virginia-American is by far the largest player in the state," said Chris Jarrett, the company president. "And we want to continue to expand and provide water service to all of West Virginia through private/public ventures. It takes the two sides working together." Known in certain circles as "the octopus," West Virginia-American's tentacles reach from Huntington to Weston to Princeton, and they're itching to extend their grasp.
The company recently produced a thick book detailing plans to take over PSDs and possibly expand current water services in each of the state's 55 counties. The overall cost for this grand plan is more than $1 billion.
"These PSDs served a real purpose in West Virginia, and some continue to do so," Jarrett said. "But they're limited in funds. Grants have decreased and regulations have increased." Many of the state's PSDs were formed in the mid-20th century after locals in numerous secluded parts of the state gathered into groups, applied for grants, and began their own water and sewer systems.
It was in the 1940s and 1950s also that more and more coal companies began pulling out, abandoning the water systems they had built for their coal camps. Faced with these deteriorating systems, residents formed PSDs around the aged company infrastructures.
"PSDs are run by your friends and neighbors, so they are under great pressure not to raise rates," said Michael Miller, West Virginia-American's vice president and treasurer. "In turn, they never had the money to put a lot of capital back into the system. Now, they're facing huge improvements at a much tougher time." De facto government It is exactly the "friends and neighbors" aspect that endears so many people to the idea of PSDs. Faced with a service problem, a customer can knock on his neighbor's door or call on his friend, rather than dialing a computerized operator with a penchant for an "All lines are busy" mantra.
"I think a PSD can become the de facto local government in some very rural areas," said John David, a Page-Kincaid PSD board member.
"Everything from sponsoring youth programs to answering questions - I mean, I just don't know what you do in an area where there's no local school, no post office, and no PSD. You won't have anybody coming together to do anything at all." The Page-Kincaid PSD is one of several Fayette County districts included in a $39.4 million West Virginia-American proposal to consolidate and take over water service in much of the county.
When the Page-Kincaid PSD was forming in the 1970s, organizers asked West Virginia-American if the company would supply the district with water from its Oak Hill plant. The company said no. It wasn't profitable at that time.
Now 20 years later, Page-Kincaid PSD is one of the more successful districts in the area, serving 620 families. The district also developed and operates a sewer system.
David is not completely opposed to a water company takeover, but he wants it done right, which also means legally.
"We would just like to see whoever ends up running the system to be community-minded and provide the area there with all the infrastructural services possible," he said.
This means also taking over sewer operations, which the water company is reluctant to do. The future of Page-Kincaid sewage has been the chief sticking point between the PSD and the company.
"The last word from West Virginia-American was we should come up with a solution for them to combine the waste and water systems," David said.
"But we're not the ones making this proposal. It should be up to them to tell us how they're going to do this and do it right." Page-Kincaid has very high water rates. If West Virginia-American took over, the rates would come down significantly, but David fears the company's hesitance to embrace the area's sewage system will lead to added costs, which will negate any water-rate savings.
The Fayette County deal remains on the drawing board, while the water company continues to grow, settling into its new digs in Winfield, Pinch and the Mercer/Summers county areas.
Is it legal?
These days, when a local water system starts to deteriorate beyond the capabilities of a town or a PSD, there are few options other than big business, which means West Virginia-American.
Lynn Hartman, director of the state Rural Water Association, laments this lack of alternatives.
"Communities that have worked hard to develop the systems they have when no one else would should have some alternative other than private sellout," Hartman said.
Association members feel the state should examine ways to help public water systems look beyond private takeover.
"We're saying slow down and look past one company and one statewide plan - which is their TIF plan," Hartman said.
TIF, or Tax Increment Financing, was enacted by the Legislature two years ago. The water company loves the idea.
TIF works like this: A private company approaches a public board (most often a county commission) with a project in mind that it believes will benefit the public, such as a water line expansion.
The county commission decides if the project is in the public's best interest, and if so, it allows the company more borrowing power based on property taxes estimated to come from the new project. The increased property taxes then go toward paying off some of the debt.
TIF proposals must be approved by the voters of the affected county.
So far, no TIF projects have been proposed, but West Virginia-American officials say they are close on a Boone County project.
There's one hitch, however. It is legal?
"TIF sounds simple, but the larger question is the payment of private de bt with public dollars," Hartman said. "The constitutionality of TIF in our state has not been tested. Nevertheless, most state agencies working with infrastructure development have embraced TIF as a way to solve many of our infrastructure problems and to achieve regionalism and consolidation of current water systems." Another issue raised by the association involves grant money, a PSD staple.
"If West Virginia-American comes in and takes over operation of a PSD, whose water lines were built with government grants, will the company not have to repay these grants?" Hartman asked. "We're researching this now, but if you look at the situation we're in with federal cutbacks, it seems in the best interest of the public to try to recover these grant dollars." The association is pushing a bill in the legislative session that would give small water systems the opportunity to form regional water authorities with public ownership.
"Where possible, let's keep it in the public domain and allow for some local control," Hartman said.
"The bizarre part of it" The state Public Service Commission's Amy Swann has seen what "local control" can do to a PSD when it gets too controlling.
"PSDs are very prone to the hands of 'good ol' boy politics,'" said Swann, who heads the commission's PSD division. "Each PSD has authority over who gets a few good jobs, and that's a lot of power to have in West Virginia." Swann can quickly rattle off some of the more outrageous PSD improprieties she has witnessed.
"The law says board members can make up to $900 a year, and we had one guy in North Central West Virginia who was making $20,000. We had another district where an employee had embezzled $75,000," Swann recalled.
"One board member hired his son and claimed he was working 100 hours a week. In another PSD, if you paid your bill with a check it was deposited, but if you came in and paid in cash, it was not.
"Another favorite of mine is the Clay County PSD, who said, "Hey, let's build a water system," but forgot to tell us about it, forgot to get health department approval or hire an engineer," she said. "The bizarre part of it all is they got an Appalachian Regional Commission grant to build the water lines." The PSC's PSD division was formed in 1986 when the Legislature decided PSDs should consolidate. Swann, 38, worked for several years, visiting counties, studying PSD layouts and making recommendations for consolidation, but the districts resisted and many pushed for a hearing.
In 1992, Gov. Gaston Caperton ordered the commission to stop consolidation efforts until the Legislature had another chance to review the 1986 statute.
"I think the legislators in 1986 were on the right track," Swann said.
"They saw that a lot of these districts had too little customer base to make water systems run in the 1990s. I think they saw safety in numbers, and I think they knew grant money was going to become more scarce." Swann believes West Virginia-American is the answer for many parts of the state because of its access to capital. She said water service to under-served areas is the bottom line no matter who provides it.
"West Virginia has to catch up. I've got a 12-year-old son and I don't want to see his talent exported to North Carolina," she said.
Common goal Chris Jarrett, the water company president, occasionally hears the word "monopoly" applied to his company's plans to serve all of West Virginia.
"There are some cities with populations larger than all of West Virginia that have one water company," Jarrett said.
Swann said she hears the monopoly argument also, "But what is a PSD if not a monopoly? You're only other option is a well," she said.
"Utility service is a monopoly service." Jarrett has also heard it said that West Virginia-American's work with public bodies such as county commissions equates to the public subsidizing private business.
"But that's simply not the case," he said. "We are using their limited funds and our limited funds for a common goal No one entity can do it alone." And as for his current customers, Jarrett said company expansion is in their best interest too, because it makes for economic development in the state and will help keep rates down in the long run.
"The more customers you have, the more customers you have to spread costs over, and that keeps rates low," he said.
But while West Virginia-American has preliminary reports on every water system in the state, Jarrett said his company is not out knocking on doors. "We wait for them to come to us," he said.
"Everything we do must be approved by the PSC who says whether it's in the best interest of the people," said Jarrett.
"Other than that, there are no regulations to stop our growth if someone wants to sell to us."n