Water for sale: An inside look at the squeeze on WV public service districts

Chris Varney was hired four weeks ago as general manager of the Mingo County Public Service District in Naugatuck, Mingo County, which serves approximately 4,700 people. He hasn't had a day off in those four weeks.

Instead, Varney handled a major underground water line break located in Dans Branch, which left that community and two others without normal water service. This was a particularly difficult situation, he said, because the PSD’s maps pre-date the construction of U.S. 119.

And that was just on his first day.

A Public Service Commission report released on April 14 indicates the PSD Varney now manages is in poor condition and that the Mingo County PSD is up for consideration to become a distressed utility.

"Staff found this facility in very poor condition ... with several safety issues," the report reads. "Staff believes that extensive replacement of major components is needed for the plant to provide reliable, continuous, and safe water to its customers."

The report also noted the facility was "insufficiently staffed" and that it takes two full-time employees 22 work days every month to manually read meters for about 3,000 customers.

Ultimately, the report said, "a lack of effective management and funding" has led to a plethora of problems, including unpaid bills, a lack of response to PSC requests, and inadequate staff training, among others.

Varney, a licensed Class 4 water plant operator with over a decade of experience, has been learning the ropes under a new board of directors in an effort to improve efficiency at the PSD. They're working together to become compliant with the Public Service Commission, and according to the report, these improvements have been noticed.

The PSC did not declare the Mingo County PSD a distressed utility due to Varney's and the board's efforts. However, the option is still on the table if they do not submit a Corrective Action Plan to the PSC within 30 days detailing a number of plans, including how to replace outdated equipment and seek long-term funding.

Varney already has plans to update the telemetry system, which he said will help employees see what's going on across the entire system. Plus, the Mingo County Commission is set to give the PSD nearly $600,000 to cover its unpaid bills.

Even with the past issues, Varney said he believes it's worth fixing the PSD to keep management local.

"I think there's more community buy-in [when water service remains locally managed]. We know a lot of the people we serve, and you lose that when you have these conglomerates come in," he said.

Distressed and Failing Utilities Improvement Act controversy

In 2020, the Legislature passed the Distressed and Failing Utilities Improvement Act, which classifies underperforming utilities into two groups:

• A distressed utility, which continuously fails to meet regulatory and environmental standards and/or exhibits ongoing poor general performance
• A failing water or wastewater utility, which meets the conditions of a distressed utility and has not improved its operating conditions and services even with outside assistance
  

The PSC will determine the best course of action after a utility is identified as either distressed or failing, which could include rate changes, providing opportunities for grants and loans, or overseeing the acquisition of a distressed or failing utility by a healthy one. To take over a failing or distressed utility, a healthier utility may acquire it and its debts fully, or enact an operating agreement and submit an improvement plan to the PSC for the utility. 

Since this bill became law, at least 16 public utilities have been declared distressed or failing.

The PSC's watchlist, released in October, currently lists 28 utilities in 14 counties. Those utilities are struggling with various issues, including financial and management woes, failure to meet Chemical Weapons Convention Regulations, and contamination events that cumulatively affect 17,000 water customers and nearly 10,000 wastewater customers.

In a Nov. 14 opinion piece posted on the PSC website, PSC Chairperson Charlotte Lane noted most of these cases come from aging systems where resources can't meet the demand. She acknowledged people don't always like the changes the PSC suggests, like assigning a healthy utility to take over a defunct or distressed one.

"As aging systems lose their source of income because of dwindling populations, we are going to see more of these cases," Lane wrote. "People don’t want to lose local control. People don’t want to pay higher rates. People don’t like change. We understand all that. But sometimes it is necessary and often unavoidable."

Is WVAW the answer to every problem?

Joseph Goodnite, general manager of the Kanawha Falls PSD in Fayette County, said he feels the PSC needs to be more proactive in assisting PSDs before they fail. He even calls the Distressed and Failing Utilities Act the "West Virginia American Water Acquisition Act" because he says it has been and will continue to be used by the PSC to allow the company to acquire PSDs and wash their hands of the problem.

"[The PSC] waits until things get really bad, and then they step in and help," he said. "Their answer to every problem with a PSD is West Virginia American Water."

Like Goodnite, Delegate Jonathan Kyle, R-Randolph, says WVAW is an easy solution for the PSC to manage failing facilities. But it comes at a cost, literally.

"Rather than expend a whole lot of resources to try to get one of these utilities back up to health, they can just say, 'OK American Water, it's yours today. Fix it.' That's a whole lot easier on them," Kyle said.

So far this year, WVAW has made deals to acquire three PSDs and has made proposals to obtain others.

While PSDs operate as nonprofits and allocate revenue toward the investment and operation of their respective facilities, WVAW saw its net income nearly quadruple from 2014 to 2023, from less than $8.5 million to more than $31.3 million.

The company has roughly 168,000 customers in 22 West Virginia counties. Last year, West Virginia American also projected water infrastructure investments totaling nearly $214.8 million from 2025 through 2029.

In contrast, Kyle said PSDs throughout the Mountain State are struggling.

"When Elkins [PSD] took over Whitmer [Water System], they were down to their last filter," he said. 

'Worst of the worst'

At a public meeting in Gauley Bridge, Fayette County, on March 6, Business Development Manager Jake Glance gave a presentation on behalf of West Virginia American Water, explaining that the Kanawha Falls PSD would benefit from necessary and costly upgrades and updates that WVAW could provide. In the presentation, he detailed the $13 million purchase offer WVAW extended to the Fayette County Commission.

The acquisition would require paying off bonds and grant money, for which the PSD is currently in debt. In these purchase proposals, the company also offers extra funding for the county commission, which it has also done for other counties recently, that can be spent however the government wishes.

In the Fayette Commission's case, they opted for a reduction to allow the possibility of their residents getting an incremental increase for rates instead of being subject to immediately higher rates.

The Lincoln County Commission accepted the sale of Lincoln PSD for $12.9 million in March, including $5.2 million in debt from the PSD and $7.7 million for the commission to use as it pleased. The company also said it plans to invest $21 million in improvements to the system in the first five years and invest a total of $35 million in the county's water system.

After the March 6 meeting, Jonathan Grose, Kanawha Falls PSD board chairman, said representatives from WVAW were at the property all day, taking measurements and photos. 

Grose said he felt that the picture painted by WVAW for the public was inaccurate, claiming the photos Glance displayed were about 24 months old and included areas where maintenance had since been completed.

"West Virginia American Water, just like any PSD ... looks for opportunity to increase their customer base," he said. "They must feel like Kanawha PSD is profitable to come after it.

Brooks Crislip, director of business development with WVAW, confirmed the company did take two trips to the Kanawha Falls PSD facility.

"The operations team and the engineering team ... reported that there was ... a lot of under-investment, exposed pipes, broken pipes," he said. "Normally, when [PSDs] get to a failing and distressed point, they are the worst of the worst that we would see."

However, according to Mollie Shadd, general manager at the Pea Ridge PSD in Cabell County, WVAW also approached them about the possibility of purchasing their PSD, which she said is healthy and functioning well.

Shadd said the PSD received a letter from West Virginia American Water about a year ago. Though she strongly opposed the sale of Pea Ridge PSD, she gathered the information requested by WVAW and the Cabell County Commission and gave them a tour. She explained that anyone — even competitors like WVAW — can ask for whatever information they would like from the PSD.

Glance and Crislip said they feel the data doesn't support the idea that WVAW is approaching healthy utilities.

"Every utility we talk to is the best in the state," Crislip said. "[They say,] 'We have the best water. We have the best way to run.' They all say it, [but the data] says otherwise."

Speaking about PSDs generally, Glance says it's a matter of perception.

"With all due respect, when they say they are a healthy PSD, they are very much not a healthy PSD," Glance said.

Growing pains

In several public meetings, residents have expressed concerns that WVAW is getting too large and forming a monopoly over the Mountain State's public water systems.

Megan Hannah, WVAW's director of external communications, said, "We're not out seeking those [failing and distressed systems]. Those are brought to us, and that state code specifically says 'any proximate or capable utility.' So it's not just American Water going out and saying we want to become a monopoly."

Glance, WVAW's business development manager, explained, "What happens more often than not, is a system is declared failing, and the first choice [a healthy utility] from the PSC to take them over says, 'Absolutely not.'"

He said this could be due to the chosen PSD lacking the capacity to take on another failing PSD.

This process has led to disputes emerging between utilities over who should take on failing water systems.

In one case, the Huntington Sanitary Board is challenging a PSC order requiring it to acquire the failing Hubbard Heights Subdivision Association, arguing the $4 million cost is unreasonable for just 27 customers and may exceed the PSC’s authority to force the HSB to incur these costs.

In another case, the cities of Elkins and Harman have formally supported the lawsuit, citing similar experiences where they were directed to acquire distressed systems without sufficient funding, leading to currently incomplete takeovers.

Meanwhile, the Charles Town Utility Board is in conflict with West Virginia American Water, accusing it of encroaching on CTUB’s service area. CTUB opposes WVAW’s no-cost waterline extension to a new 600-unit development, arguing it undermines CTUB’s infrastructure investments and creates unnecessary utility competition.

WVAW officials say they're just doing their part to improve the Mountain State's crumbling water infrastructure caused by the ongoing financial strain and neglect by PSDs.

Glance noted that 50% of West Virginia's 553 water and sewer providers have fewer than 877 customers and many are in dire need of investment.

"We are headed towards a very dire situation in West Virginia if we don't make adjustments," Hannah said.

However, Crislip emphasized working with WVAW has its benefits.

"We can do a $17 million project ... and that cost is spread out amongst 170,000 customers, as opposed to 2,000 right there," he said. He also said WVAW has the resources for these projects, which can be easier and quicker than "waiting for the red tape of the Public Service Commission's process."

‘One heartbeat away from disaster’

Not everyone is opposed to being taken over by WVAW.

In late January, it was announced that WVAW sought to purchase Logan County's two public water systems: Buffalo Creek PSD and Logan County PSD. While HD Media has reported residents' displeasure with the sale, Buffalo Creek PSD General Manager Herby Pruitt stood in support.

He said the aging wastewater plant processes 1.2 million gallons per day — nearly double its 750,000-gallons-per-day capacity — while employees are also "throwing money left and right" to fix other daily issues, like replacing a $26,000 computer system.

“I’ve said it time and time that we are one heartbeat away from a total disaster ... We’re looking at [wastewater] backing up in homes, shutting down churches, schools, businesses," Pruitt said. "It could go down at any possible moment.�

Pruitt said the Buffalo Creek PSD would have to raise its rates to a minimum bill of $110 for those using 2,000 gallons of water or less per month just to have $8,000 in revenue. However, he said the PSD cannot do so as many of its 1,625 customers are on fixed incomes.

For reference, WVAW reports on its website that the average household with a ¾-inch meter or less would only pay $41.79 a month for the first 1,500 gallons of water.

The sale was approved by the Logan County Commission on March 6.

WVAW service issues

Though WVAW touts ongoing improvements and higher capital, the grass may not always be greener on the other side.

According to Robert Williams, director of the Consumer Advocate Division of the West Virginia Public Service Commission, WVAW is not inherently more efficient than PSDs. He pointed out that American Water's systems also have significant issues, such as high levels of non-revenue water from leaks.

As reported previously in the Gazette-Mail, residents in Dunbar have been struggling to obtain quality water, even with WVAW service.

Keke Frederick and Mary Grinnan say water issues in their Roxalana Hills townhouse complex have persisted for years.

Frederick, who moved from Cross Lanes three years ago, said she has never experienced consistently clean water in Dunbar. Grinnan, who has lived there for 35 years, said the past five years have been "terrible."

"There's not a month where the water does not cut off," Frederick said.

The residents say West Virginia American Water has not offered financial compensation for their frequent outages.

Williams said WVAW estimated it will take $7 million to $8 million to fix its own system. This, in part, is why the company's rates are now the highest in the state. The burden of fixing these infrastructure problems being spread out amongst all of its customers.

"If you're going to expect the private system to fix up a public problem," Williams said, "then you need to find a way to get some ratepayer relief."

What's next

As the state faces a growing list of aging, underfunded systems, West Virginians must weigh the cost of independence against the promise — and pitfalls — of privatized fixes and work toward their preference.

In an effort to curb this, Kyle — the Randolph County delegate — sponsored House Bill 3179 in the legislative session that just ended, which limits the PSC's authority to force a utility to take over a failing one if it would cost too much. It must first look at other options, like new management or voluntary mergers. If the takeover would cost more than what’s available through certain grants or what the utility would normally pay to serve new customers, the PSC can’t force the move.

It mentions possible funding from state grant programs, but it doesn’t promise that money will be provided. It only stipulates that without enough funding, the takeover can’t be required.

Kyle said he believes this will help utilities get systems up to code and operational standards while also encouraging the PSC to regulate PSDs more rigorously and get rates where they need to be to function well. He hopes the legislation will help PSDs become financially stable before complete failure. 

Williams said he feels House Bill 3179 may actually limit solutions to fixing utility problems by requiring that any acquisition or system improvement must be done without raising rates, which can only be achieved through grants and loans. He points out this is problematic because there's limited grant money available, and that means that necessary infrastructure fixes may not happen.

HB 3179 unanimously passed the House of Delegates, 97-0 with three delegates absent or not voting, on March 31. It cleared the Senate in another unanimous vote on April 10. Gov. Patrick Morrisey has not taken action on the completed legislation.

He said he would like to see county commissions collaborate with PSDs to consolidate smaller utility districts to share resources and spread infrastructure costs across a larger customer base. This could involve sharing employees or creating operating agreements between districts.

Both Williams and Kyle agree: We need to look for solutions ahead of problems.

"We need proactive regulation," Kyle said, "just as much as reactive regulation or legislation."