The Kentucky Public Service Commission last week approved higher rates for Kentucky Power customers, but reduced the increase the company proposed slightly.

The PSC ultimately found that by approving parts of the Kentucky Power application and denying others, the company’s base revenue requirement could be reduced by more than $17 million to $52 million.

The residential service rate increases were approved as follows:

• Energy charge per kWh — 11.032 cents — less than the 12.265 cents requested by Kentucky Power, but an increase from the previous rate of 9.810 cents.

The PSC’s order was hailed by the Office of Kentucky Attorney General Daniel Cameron — cited several times in the PSC order as a key intervenor in the case — as saving Kentucky Power customers money.

“Our office fought before the PSC to limit the rate increase proposed by Kentucky Power, and we are proud that our efforts resulted in nearly $18 million in savings for Kentucky ratepayers,” Cameron said in a statement. “We know that COVID-19 has led to tough economic times for many Kentuckians, and we advocated for a plan to expedite the return of funds from the Tax Cuts and Jobs Act to customers. We were pleased that the PSC agreed to this plan, ensuring that most Kentucky Power customers will see only a small or, in some cases, no increase to their usage bill for the next three years.”

The Attorney General, the statement said, also advocated for Kentucky Power to use funds owed to ratepayers from the Tax Cuts and Jobs Act passed by Congress in 2017 to offset the approved increase. The PSC’s order authorizes this measure, the statement said, meaning that more than $40 million annually will be returned to ratepayers over the next three years to help offset any increases, the statement said.

The Attorney General and fellow intervenor, Kentucky Industrial Utility Customers, Inc. (KIUC), were able to get the PSC to recognize that Kentucky Power’s current business model utilized for maintaining and expanding transmission infrastructure is not sustainable, the statement said. The PSC is likely to revisit this issue in the next Kentucky Power rate case.   

Kentucky Power had requested to be granted PSC approval for several measures, including:

• Changes to its rates to increase its revenue by more than 13 percent, or more than $70 million;

• A Certificate of Public Convenience and Necessity to purchase and install an advanced metering infrastructure (AMI) system;

• New and revised tariffs; and

• Approval of regulatory assets and liabilities.

The company, according to documents, proposed to offset the first year of the rate increase by ending Tariff Capacity Charge (Capacity Charge) two years early, conditioned upon the PSC approving the entirety of the application as filed, and by using a portion of the unprotected excess accumulated deferred income tax (ADIT) to offset the first year of the rate increase.

However, the PSC ruled that the Capacity Charge should be ended regardless.

One issue noted by the PSC in its order was the method by which Kentucky Power determined its revenue requirement and required increase. The company, according to the order, attempted to calculate its rate change based on the “capitalization method.”

However, the order noted that only one intervening party — the Attorney General’s Office — submitted testimony about that issue and argued that the company should use a “rate base” method instead. The PSC found that the AG’s office’s assertion was correct.

“ … The (PSC) finds that applying the capitalization method to calculate Kentucky Power’s revenue requirement is not reasonable because this method measures the capital allocations to Kentucky Power from its parent company, in excess of that needed to finance Kentucky Power’s direct investment rate base as determined herein,” the PSC wrote in its order. “In the converse, the rate base method measures the direct investment into Kentucky Power’s system, and, under the facts presented here, is a more accurate method of measuring the financial health of Kentucky Power and its operations.”

In its application, the order states, residential customers’ charges were set to rise from $14 to $17.50, an increase of 25 percent, something the PSC found reasonable, which would provide an additional $5.6 million annually of fixed revenue for Kentucky Power.

Under that structure, the PSC notes in its order, “For a residential customer with an average monthly usage of 1,100 kWh, the average bill increases $18.59, or 15.46 percent, from $120.26 to $138.85.”