BY ROGER SMITH
MOUNTAIN CITIZEN

INEZ — The Kentucky Public Service Commission has denied the Martin County Water District’s request to end state monitoring and close the long-running oversight case, ruling that the district has not yet shown it can operate without continued scrutiny or without the support of its outside management company, Alliance Water Resources.

In an order entered April 8, the commission said Martin County has made progress since Alliance took over day-to-day management in 2020, including reducing water loss and improving some administrative practices. But regulators concluded that the district’s financial condition remains fragile, that water loss remains among the highest in Kentucky, and that major infrastructure problems remain unresolved.

The commission also ordered Martin County Water District and Alliance to file an updated infrastructure plan within 120 days detailing the current condition of the system, any continuing or newly identified problems and planned improvements aimed at reducing unaccounted-for water loss.

The ruling keeps in place the reporting requirements established in the commission’s July 22, 2020 order, including monthly and quarterly filings tied to the district’s debt service surcharge and management/infrastructure surcharge. Regulators said those requirements will remain so long as the district continues collecting either surcharge from customers.

The district had asked the PSC on Dec. 3, 2025, to close the case and end the monitoring requirements, arguing that it had moved well beyond the “constant state of emergency” described in earlier commission orders and had complied with all reporting obligations for more than five years. The district cited annual audits filed on time, required commissioner training, reduced water loss and increased revenue from new meters and operational improvements.

The commission acknowledged those gains but said they were largely achieved under Alliance’s management and did not establish that the district could maintain that progress on its own.

“Absent Alliance, Martin District has not provided sufficient evidence that it is able to fulfill its statutory obligations without a third-party management company,” the commission wrote.

The order points repeatedly to the district’s continuing dependence on Alliance. Regulators noted that Martin County remains in arrears to the company and is using the management/infrastructure surcharge “solely to pay Alliance,” effectively leaving Alliance in the position of “serving as a bank providing a line of credit to assist Martin District in maintaining solvency.”

The PSC also emphasized the district’s ongoing water loss problem. While Martin County reported water loss had fallen from roughly 71% to 45% at times, the commission said audited figures showed average unaccounted-for water loss of 69.87% from 2020 through 2024, with reported 2025 loss at 52.08%, still “extraordinarily high” and among the worst in the state. Commission regulations generally set a 15% threshold for unaccounted-for water loss in rate cases.

Financially, the commission said the district remains under strain. The order cites a Dec. 29, 2025 revenue requirement report filed by the district stating that current revenue is not sufficient and estimating that Martin County would need roughly a 37.55% increase in required revenue at present rates to meet its needs.

At the same time, the district said it was not seeking a rate increase and instead was pursuing outside funding and litigation recovery tied to the failed raw water intake project. The PSC said the district could not rely on an anticipated civil settlement as a basis for future infrastructure planning.

The commission also pointed to a separate case in which Martin County Water District was denied retroactive approval for truck lease debt after failing to obtain advance approval. In that case, regulators ordered the district to file a general rate case, an alternative rate adjustment or a detailed motion explaining why no rate changes are needed by Aug. 31, 2026.

The April 8 order says information filed in the monitoring case does not satisfy that requirement.

In addition, the commission noted that an investigation was opened March 31 into the district, its commissioners and Alliance Water Resources manager for alleged failure to comply with the statute governing PSC approval of certain utility debt. Regulators said the alleged statutory violation was concerning, especially because the district was aware of the issue before it asked to end oversight.

Public comments also weighed against lifting oversight. The order says multiple residents urged the PSC to remain involved to protect accountability, transparency and safe, reliable water service. The commission also referenced comments from current board member Nina McCoy, who defended Alliance’s role and warned that ending the relationship could leave the district unable to replicate essential services including accounting, insurance, equipment access, emergency staffing, regulatory compliance and safety procedures.

While the commission said the order should not diminish “the hard work that has been undertaken by Martin District,” it concluded that the district’s decadeslong history of mismanagement and the severity of its remaining problems make continued oversight necessary.

“The Commission would be remiss in its statutory authority to ensure Martin District’s customers are provided safe, reliable and adequate water service if Martin District were prematurely relieved of oversight for its acknowledged continuing issues,” the order states.