Water rates are going up 18 percent in Lexington and surrounding areas, not the 32.5 percent that Kentucky American Water asked for last fall.
The company has said, however, that it will be back next year wanting a larger increase to pay for a new $162 million treatment plant and pipeline.
In an uncommon split decision Monday, the state Public Service Commission approved an April settlement between the utility and the attorney general's office; the Community Action Council, representing low-income water customers; and the city of Lexington, where most of the utility's customers live.
PSC vice chairman James Gardner, a former member of the Urban County Council and the Fayette County school board, voted against the settlement, saying Kentucky American had failed to prove that the increase was reasonable.
He questioned whether part of the rate increase should go toward the company's new plant and pipeline before it is completed. He also noted that the utility's last rate increase was in December 2007 and that it has announced that it will ask for a larger increase next year.
Chairman David Armstrong and commissioner John Clay voted in favor of what they called a "reasonable compromise."
The increase takes effect immediately. An average residential customer using 5,000 gallons of water a month will see a monthly increase of $3.90.
The higher rate will bring the company an additional $10.3 million a year, $1.5 million of which would go to the plant on the Kentucky River north of Frankfort and a 31-mile pipeline to carry water to Lexington. The project is scheduled to be completed next year. It is designed to meet Lexington's water supply needs through 2030.
When Kentucky American asked for the larger rate increase last fall, the company said it wanted to prevent the "rate shock" of asking for money for the entire project later.
In the settlement agreement, the attorney general, the city of Lexington and the Community Action Council said they would not object to the next rate increase request on the grounds of that "rate shock."
The PSC pointed out Monday that it has not agreed to that.
"Kentucky American should be prepared to address ... questions from us related to the possible balancing of shareholder and ratepayer interests to prevent the occurrence of 'rate shock,'" the commission said.