Herald-Leader Editorial

Don't give utility new rate control; KAW seeks increase, less scrutiny

May 23, 2013 

  • If you go

    Public Service Commission to hear public comments on Kentucky American's proposed 17.6 percent rate increase

    When: 5:30 p.m., Tuesday, May 28

    Where: Bryan Station High Schoool, 201 Eastin Rd.

    Formal hearing: 10 a.m. June 4 at PSC offices in Frankfort.

American Water stockholders are looking forward to their fifth straight dividend increase in five years, while ratepayers can look forward to higher water bills.

Lexington consumers are already paying 71 percent more for water than six years ago as a result of three rate increases, and soon the Public Service Commission will hear Kentucky American's request for another increase.

To put that into perspective, almost 20,000 poor households will spend 2 percent to 4 percent of their total incomes on a natural resource that falls from the sky and that no one can live without, if the American Water subsidiary gets its way.

That's according to testimony filed with the PSC by Jack Burch, head of the Community Action Council, which, along with the state Attorney General's Office and Urban County Government, is contesting the rate request.

Kentucky American is not just seeking a 17.6-percent increase, but also a change in the way its rates are calculated that would make it easier to increase water bills in the future.

The utility wants to be allowed to automatically pass along to ratepayers capital spending on infrastructure, as well as the cost of chemicals and electricity, without the approval now required from state regulators. Rate increases would become more frequent and subject to less scrutiny.

The PSC should reject this anti-consumer proposal out of hand, with the possible exception of electricity. KAW can't negotiate the price of electricity, but the broader adjustment it's seeking would lessen the company's incentive to bargain with contractors and vendors for better prices.

Poor Kentucky families may be giving up some other necessity to pay for water, but things are going great for New Jersey-based American Water and its stockholders.

In a May 6 announcement president and CEO Jeff Sterba said: "On a compounded basis, our annualized earnings have increased by 14 percent from 2010 to 2012. This dividend increase is in recognition of this earnings momentum and demonstrates our commitment to striking the right balance between increased dividend payouts to shareholders and continued proactive investment in our systems on behalf of our customers."

To keep that balance right, Kentucky American says it must collect an additional $12.3 million a year because it has spent $58 million on system upgrades at a time when customers are using less water.

In other words, you need to pay more for the water you didn't use.

And the water you didn't use is expensive because Kentucky American insisted on building a $164 million treatment plant that opened in 2010 on the Kentucky River in Owen County and 31 miles of pipeline to Lexington. Why? To meet KAW's projected increasing demand for water. An earlier PSC bit and approved the plan.

Water shortages must no longer be a worry: Kentucky American has enough excess capacity that it is negotiating agreements to sell water to Nicholasville and Paris.

In a double whammy for consumers, KAW also says you should pay more to make up for the money it lost by ending its billing contract with the city.

In testimony to the PSC, LFUCG finance commissioner William O'Mara says the water company's decision to exclude city sewer and garbage charges from its bills is costing the government at least $500,000 more a year, "has not resulted in any benefit" to the city or its citizens and "will likely result" in higher fees.

There seems to be a lot of material here for those contesting the rate increase, but really they can only affect the margins.

Lexington voters opened the spigot on their wallets in 2006, when they rejected public purchase of the water utility.


IF YOU GO

Public Service Commission to hear public comments on Kentucky American's proposed 17.6 percent rate increase

When: 5:30 p.m., Tuesday, May 28

Where: Bryan Station High Schoool, 201 Eastin Rd.

Formal hearing: 10 a.m. June 4 at PSC offices in Frankfort.

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