FRANKFORT — Kentucky American Water Co. is pushing a bill in this year's state legislative session that its critics say could lead to higher rates for consumers and make the state's process for approving rate increases less transparent.
The Lexington-based utility contends that the legislation would help communities that are trying to sell their troubled water systems while protecting ratepayers.
The sponsor of the bill, Sen. Chris Girdler, R-Somerset, indicated earlier this week that he doesn't expect the bill to go far in the 2014 General Assembly.
"Senate Bill 152 was filed as a starting point of conversation for communities that may be looking to ease budget concerns by voluntarily allowing other entities to purchase and operate water systems in their community," Girdler said in a statement. "At this time, the bill remains just that — a starting point for conversation."
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The measure would change how the Public Service Commission reviews and values the acquisition of water or sewer systems by investor-owned water utilities, such as Kentucky American. It would require the commission to allow a utility company to collect a profit from its ratepayers on the entire "fair market value" of all the assets it acquires.
The fair market value would be set by three appraisers: one chosen by the acquiring utility, one by the utility to be acquired and the third chosen by those two. The commission would be required to accept the average of the value determined by the three appraisers.
The Public Service Commission would not be allowed to dispute or question the methods of valuation or the determined current value, said Tom FitzGerald, director of the non-profit Kentucky Resources Council, which provides legal and technical assistance on utility issues. That, he said, could result in sharp increases in costs to taxpayers.
The public is ill-served by removing the Public Service Commission's authority to determine how an asset should be valued, FitzGerald said.
He also expressed concern that the public and the attorney general's office would not be able to challenge the valuation.
"This concern is especially acute where 'city-owned' assets are considered, since the ability of the commission to review the records of municipalities in such a transaction is much more limited than in a transaction between regulated utilities," he said.
Susan Lancho, manager of external and governmental affairs for Kentucky American, said the legislation "helps create another option for communities that are voluntarily seeking ways to address challenges with their water systems."
"Despite the desire and need of some systems to sell their water system assets, few acquisitions occur in Kentucky due to the uncertainty of the value that will be assigned to these systems' assets in the acquiring utility's subsequent rate cases," she said. "We believe this legislation could benefit many Kentucky communities with troubled water systems."
The PSC has "serious concerns" about the legislation, spokesman Andrew Melnykovych said. He said the bill would overturn a 1985 commission ruling that sets up a transparent rate-hearing process involving utilities when they acquire public water or sewer systems.
Lexington Mayor Jim Gray also opposes the bill.
"It would allow Kentucky American to finance expansions in newly acquired areas on the backs of its existing customers," said Susan Straub, a spokeswoman for Gray. "It's wrong and just not fair to ask Lexington's citizens to pay for acquisition of new facilities or improvements to systems for other communities."
Kentucky American Water serves about 124,300 customers in 10 counties in Central and Northern Kentucky. All but about 3,900 customers are in Lexington and surrounding communities. The company also is a wholesale water provider to five municipalities, three water districts and a water association.
Kentucky American Water is a subsidiary of Voorhees, N.J.-based American Water.