The state Public Service Commission has approved Kentucky American Water's request to use a controversial water treatment plant for customers outside of Central Kentucky.
In an order issued Thursday, the PSC approved Kentucky American's plan to build a pipeline to connect its customers in the Owenton area to the water treatment plant opened in 2010 along the Kentucky River in Owen County to serve Kentucky American's customers in Fayette and six surrounding counties.
But the PSC did not rule on how the costs would be allocated for the $14.1 million connection project. Kentucky American wants to allocate the costs across its entire customer base, prompting opposition from Lexington officials, who say customers here shouldn't pay for a project that doesn't directly benefit them. The PSC said it will consider the cost allocation as part of Kentucky American's pending rate case, in which the utility has requested a 14.6 percent increase in rates.
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The issue concerns the 3,900 customers in Kentucky American's Northern Division in Gallatin, Grant and Owen counties who use about a million gallons of water daily. Kentucky American created the division by acquiring small water systems, including Owenton's water system.
The bulk of Kentucky American's customers are in its Central Division in Fayette and six surrounding counties. It was those 119,000 customers who were intended to be served by the large Owen County water treatment plant. That controversial plant, which can treat 20 million gallons water daily, cost about $164 million and is connected to Fayette County through a 31-mile underground pipeline. The plant became a rallying point for critics of the water company who had sought in previous years to have the city condemn the utility.
Critics have said the plant was not needed, because Kentucky American has two other treatment plants serving the Central Division. Those are the Kentucky River supply pump in southeast Fayette County and one on Richmond Road. They have a combined capacity of 65 million gallons a day.
Critics point to declining water use in Central Kentucky, but utility spokeswoman Susan Lancho said the company knew that when proposing the treatment plant. She said the utility still saw a need for it, anticipating increases in use over the next 20 to 30 years.
"It wasn't like this was a surprise to us," she said.
In 2010, the PSC granted a 29 percent rate hike to help Kentucky American offset the costs of the plant. That increase was on top of an 18 percent increase granted in 2009, of which a quarter went toward the plant and pipeline.
The utility's current rate increase request is tailored more toward other infrastructure projects, Lancho said. Under that proposal, rates would increase about $12.3 million overall. The average residential customer's monthly bill would increase $5.76, or 17.6 percent, from $32.75 to $38.51.
Paying for the project
Lancho said the utility's leaders think the costs for the new $14.1 million Owenton connection project should be spread out over its entire customer base, including the Central Division, because Kentucky American's rate structure is designed such that Northern Division customers have helped pay for the treatment plant serving the Central Division.
"We are a regional water provider," Lancho said. "We believe that by having capital costs spread over that larger pool of customers, our customers benefit because we can do the kind of investments we need."
That line of thinking has spurred criticism.
"The key thing about the rate increases since the opportunity to buy the water company was defeated is that Lexington citizens have been paying for expansion of the water company's system to serve other areas," said Lexington lawyer Foster Ockerman Jr., who represented local ownership advocacy group Bluegrass FLOW (For Local Ownership of Water). "With the decrease in demand in Fayette County today, what the Kentucky River supply pump gives us is sufficient for our needs.
"But we are being assessed a charge to pay for services that we don't get."
Lexington city officials have opposed Kentucky American's plan, saying the utility was aware of the problems with the Owenton system when it acquired it in 2005. The PSC said the Owenton system is "substantially deficient" and "poses an unacceptable risk to the continuity of service."
"It's just unbelievable that Kentucky American would force Lexington citizens to pay for a new pipeline that would serve the city of Owenton," Mayor Jim Gray said in a statement. "This request is dead wrong and we will fight it. Kentucky American's routine rate increases are wrong and unfair. They're bad for business and hurt our citizens and Lexington's ability to create jobs."
Scott Sloan: (859) 231-1447. Twitter: @HeraldLeaderBiz