Mandating Commission-Structured Operation & Maintenance Agreements under the Distressed and Failing Utilities Improvement Act

Introduction

Gauley River Public Service District (“Gauley River”) supplies water to the Mount Olive Correctional Complex (“Mt. Olive”) in Fayette County, West Virginia. After repeated outages and boil-water advisories between December 2021 and March 2023, the West Virginia Public Service Commission (“Commission”) opened a general investigation and then a “distressed utility” proceeding under the Distressed and Failing Utilities Improvement Act, W. Va. Code §§ 24-2H-1 to ‑9 (2020). The key dispute was whether the Commission could—and should—order Gauley River and a nearby capable utility (West Virginia-American Water Company, “WVAWC”) to enter into a managerially robust operation and maintenance agreement to remedy chronic management, staffing, capital-planning, and service-reliability deficiencies.

Summary of the Judgment

On May 22, 2025, the Supreme Court of Appeals of West Virginia affirmed the Commission’s October 31, 2024 order. The Commission had:

1. Determined that Gauley River is a “distressed utility” under the Act;
2. Named WVAWC a “capable proximate utility”;
3. Ordered Gauley River and WVAWC to negotiate an arms-length operation and maintenance (“O&M”) agreement granting WVAWC real managerial and operational control;
4. Rejected a weak “consulting” draft agreement and, when the parties failed to meet the Commission’s directives, imposed a standard O&M agreement structuring WVAWC’s oversight, capital planning, staffing, and funding roles; and
5. Denied Gauley River’s petition for reconsideration, holding that the Commission acted within its statutory authority under W. Va. Code § 24-2H-7(b)(2).

Analysis

Precedents Cited

• Monongahela Power Co. v. Public Service Commission, 166 W.Va. 423, 276 S.E.2d 179 (1981) & Central West Virginia Refuse, Inc. v. PSC, 190 W.Va. 416, 438 S.E.2d 596 (1993)
  – Established the three-part standard of review for Commission orders: statutory jurisdiction, evidentiary support, and propriety of the substantive result.
• Appalachian Power Co. v. State Tax Dep’t, 195 W.Va. 573, 466 S.E.2d 424 (1995) & Pool v. Greater Harrison County PSD, 241 W.Va. 233, 821 S.E.2d 14 (2018)
  – Confirmed de novo review of statutory and regulatory interpretation.
• Wilhite v. PSC, 150 W.Va. 747, 149 S.E.2d 273 (1966) & Casey v. PSC, 193 W.Va. 606, 457 S.E.2d 543 (1995)
  – Held that the PSC’s powers are purely statutory, confined to those granted by the Legislature.
• State v. Epperly, 135 W.Va. 877, 65 S.E.2d 488 (1951) & Mason County PSD v. PSC, 247 W.Va. 580, 885 S.E.2d 161 (2022)
  – Emphasized that clear and unambiguous statutes must be given full effect.

Legal Reasoning

The Court applied the Act’s text, particularly W. Va. Code § 24-2H-7(b), which authorizes the Commission—after designating a utility “distressed” and naming a “capable proximate utility”—to order “an alternative to … ordered acquisition” including “operation of the distressed utility by another public utility … under a mutually agreed arms-length contract.” The Commission first gave the parties a chance to negotiate such an O&M agreement, specifying that the utility’s board and management deficiencies required WVAWC to have real oversight authority over financial, operational, managerial, and staffing functions.

When the parties instead submitted a non-binding “consulting” draft—leaving Gauley River effectively in control—the Commission lawfully rejected it. The Act’s plain language allows the Commission to impose any “viable alternative other than an ordered acquisition,” W. Va. Code § 24-2H-7(b)(6), once the parties fail to reach a mutually agreed contract. The Court held that structuring and ordering a standard O&M agreement was neither arbitrary nor beyond the Commission’s jurisdiction, and that the agreement (of fixed ten-year duration, leaving Gauley River a separate legal entity, and avoiding transfer of ownership of all assets) did not constitute an acquisition reserved for “failing” utilities.

Impact

This decision underscores the Commission’s broad remedial powers under the Distressed and Failing Utilities Improvement Act. It clarifies that:

• When a water utility is found “distressed,” the PSC may not only propose but must enforce a robust O&M agreement if parties fail to meet the Commission’s conditions;
• Such an agreement can be imposed by the Commission—even over a utility’s objections—so long as it stays within the statutory alternatives short of acquisition;
• The remedy preserves the utility’s legal identity while ensuring safe, continuous service and effective professional management by a capable proximate utility.

Future distressed-utility proceedings will likely feature detailed Commission-structured O&M agreements as a principal statutory tool, reducing the risk of service interruptions and public-health crises.

Complex Concepts Simplified

Distressed vs. Failing Utility: A “distressed” utility shows chronic operational or financial problems but may continue service with outside help. A “failing” utility cannot sustain safe, reasonable service and may be acquired by a stronger utility.
Capable Proximate Utility: A nearby public utility with sufficient resources and expertise to assist or operate the troubled system effectively.
Operation & Maintenance Agreement: A written contract under which one utility (WVAWC) takes over day-to-day management, repairs, staffing, capital planning, and regulatory compliance for another (Gauley River), without transferring ownership of all assets.
Arms-Length Contract: A fair negotiation between independent parties, here initially required by the statute and enforced by the Commission when negotiations break down.

Conclusion

Gauley River PSD v. PSC reaffirms the Public Service Commission’s authority to order standardized, Commission-structured operation and maintenance agreements as a targeted, statutory alternative to acquisition for distressed water utilities. The decision enhances regulatory tools to safeguard continuous, safe water service, especially in high-risk settings like correctional facilities, and clarifies the PSC’s ability to impose binding management solutions when voluntary negotiations fail.