ASHLAND, Ky. (Nov. 22, 2017) – Kentucky Power has reached a settlement agreement with the majority of groups that are part of its base rate review filed with the Kentucky Public Service Commission (PSC). The settlement, filed Wednesday, is not final until approved by the PSC.
The settlement agreement is focused on providing the company the necessary funds to continue to provide safe and reliable service while structuring rates with a focus on affordability.
The settlement decreases Kentucky Power’s revenue requirement request by $28.6 million to an overall total increase of $34.7 million. In its original request filed in June, Kentucky Power had requested $69.6 million, which was reduced to $63.3 million after the successful refinancing of some long-term debts.
The settlement proposes rates based on the opportunity to earn a return on equity of 9.75 percent. This is a vital component to attract investment. The settlement also provides a mechanism for Kentucky Power to recover 80 percent of its mandatory federal transmission expenses. The company had indicated that it would have to file another case immediately if the federal transmission costs were not accounted for in this case.
As a result of the balance provided by the settlement, Kentucky Power agreed that if the agreement is approved, it would not seek an update to its general base rates until at least 2021. This essentially provides customers with a three-year stay out of changes to base rates.
Under the settlement agreement, the residential customer rate would increase approximately 9 percent. The original rate adjustment filing with the PSC had residential customer rates increasing about 16 percent. Commercial and industrial customer rates would increase 3 to 7 percent, down from a requested 7 to 14 percent, based on usage.
The ability to lower the rate request so dramatically in the settlement from the original filing is due in part to a $50 million deferral of expenses related to the generation of electricity at the coal-fired Rockport Plant in Indiana. Kentucky Power purchases 393 megawatts of coal-generated electricity from Rockport to serve eastern Kentucky customers. The deferral delays recovery of these allowable expenses to reduce the current rate effect on customers.
“We want the same thing our customers want, and that’s safe, reliable and affordable electric service,” said Kentucky Power President Matt Satterwhite. “One of the best ways I know how to do that is to invest in economic development. Our partnership with our customers is helping to revitalize eastern Kentucky. The settlement continues to support that program and the long-term solutions we are working on to rebuild our region.”
The settlement also decreases residential customer monthly contributions to the economic development program from 15 cents to 10 cents and increases commercial and industrial customer contributions to $1. All economic development fees collected from customers will continue to be matched by the company to generate nearly $1.1 million a year to invest back into eastern Kentucky.
“We are working together to better our communities and to continue our work to bring investment and jobs to eastern Kentucky,” Satterwhite said. “The settlement will help Kentucky Power recover growing costs of providing safe and reliable service to customers and allow us to continue upgrading the electric network to assist in economic growth.”
Other provisions of the settlement include the extension of the Coal Plus program to assist in the opening of new coal operations in the region. The settlement also includes changing depreciation rates for the Big Sandy and Mitchell plants, as well as amortization of deferred storm expenses. The settlement continues the School Energy Manager Program and extends the K-12 school tariff to include private schools.
In addition, the settlement includes bill formatting changes and approval of a new singular pole attachment rate. It also maintains proposed funding for the Home Energy Assistance Program (HEAP) to assist low income customers, the proposed elimination of an employee discount and scales back vegetation management spending.
Interveners in the rate review who reached a settlement agreement with Kentucky Power are the Kentucky School Boards Association, Kentucky League of Cities, Kentucky Industrial Utility Customers, Wal-Mart and the Kentucky Cable Telecommunications Association. The Kentucky Attorney General’s Office of Rate Intervention and the Kentucky Commercial Utility Customers did not sign the settlement agreement.
“The settling parties worked together to constructively come up with a balanced settlement that would allow the company to continue to operate and allow the wave of economic development to continue to build,” Satterwhite said. “The settlement also incorporates creative rate structuring to help alleviate some of the immediate pressure rate increases have on our customers.”
The Public Service Commission has scheduled hearings about Kentucky Power’s rates for Dec. 6, 7 and 8 in Frankfort. The Commission can accept, reject or modify the settlement. If approved, the new rates would go into effect in mid-January.