December 7, 2017
Satterwhite takes the stand to explain rate increase of $40 million starting in January
FRANKFORT, Ky., December 6, 2017 – An expert witness for the Kentucky attorney’s office on Wednesday told the Kentucky Public Service Commission that his calculations justify a $39.9 million rate increase for Kentucky Power customers.
Ralph Smith, a regulatory consultant and a certified public accountant with Larkin & Associates in Livonia, Michigan, made his comments on the first day of a multi-day evidentiary hearing before the PSC concerning the company’s request to adjust its base rates. When asked by PSC if he stood by his filed testimony, Smith said, “Yes.”
In June, Kentucky Power filed a rate review request with the PSC seeking to recover $69.6 million from customers. A settlement reached last month and presented to the Commission for consideration lowered that request by $28.6 million to an overall increase of $34.7 million.
In addressing Smith, the Commission said, “The main objective is to have a fair and reasonable settlement of all parties involved, that’s the objective. How we get there depends on the testimony provided by witnesses like you. Commissioners also expressed concerns over reconciling a position taken by the attorney general’s office of no increase and Smith as the attorney general’s witness recommending $39.9 million. “There is a conundrum there.”
The Commission is conducting its official hearing this week on Kentucky Power’s request to ask questions and gather additional testimony before issuing a ruling. Commissioners can approve, modify or reject the settlement agreement. If approved, new rates would go into effect in mid-January.
The settlement proposes rates based on the opportunity to earn a return on equity of 9.75 percent, which Kentucky Power consider 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.
Kentucky Power President Matt Satterwhite testified that recovery of transmission costs are mandated by PJM, the regional grid operator that oversees transmission lines in Kentucky and 12 other states.
While on the stand, Satterwhite touted the benefits of the settlement agreement as offering a balance. He also testified that the Kentucky Power’s economic development efforts to bring industry and jobs to the region drives his decisions.
“It’s not just important, it’s vital. My No. 1 goal after the safety of my employees is economic development. We have to put all our efforts into there. We’ve got to tear down county lines and political lines and be one big region,” Satterwhite said. “We need to change the face of eastern Kentucky to bring diversity of industry.”
“I think what this case is doing is allowing a vital corporate partner to provide safe, reliable service as a key component of helping people locate in eastern Kentucky and bring in more companies. … It’s really an overall strategy of do you want to stick were you are or do you want a strategy that grows the entire region.”
As a result of the balance provided by the settlement, Kentucky Power agreed that if the agreement were 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.
The settlement would decrease residential customer monthly contributions to Kentucky Power’s 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.
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. About 80 percent of the electricity generated for Kentucky Power comes from the burning of coal.
“I’m just trying to help coal,” Satterwhite said.
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 Commission will continue its hearing on Kentucky Power’s rate case on Thursday.
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Kentucky Power, with headquarters in Ashland, provides service to about 168,000 customers in 20 eastern Kentucky counties, including Boyd, Breathitt, Carter, Clay, Elliott, Floyd, Greenup, Johnson, Knott, Lawrence, Leslie, Letcher, Lewis, Magoffin, Martin, Morgan, Owsley, Perry, Pike and Rowan. Kentucky Power is an operating company in the American Electric Power system.
