Water co. seeks 30% rate increase

Getting more water to Lexington could soon increase the flow of money from customers' wallets.

Kentucky American Water on Friday asked state regulators for a rate increase that would bring in $18.5 million a year and add 30 percent to residential bills.

Nearly half of that increase is the first installment on a new 20 million-gallon-a-day treatment plant and pipeline designed to meet growing demands and help the city through droughts. If the plant had been operating during the extreme drought conditions of 2007, the company says, restrictions on outdoor watering would not have been needed in Lexington.

The project, scheduled to be completed in the summer of 2010, is expected to meet the city's water supply needs at least through 2030.

The rate increase filed with the Kentucky Public Service Commission comes six months after the commission gave the utility permission to build a $162 million facility that includes the plant on the Kentucky River north of Frankfort and a 31-mile underground pipeline to carry the water to Lexington.

"This request ... is designed to recover investments made to ensure our long-term water supply is sufficient for our customers' needs and to improve our water system's reliability," Kentucky American President Nick Rowe said in a statement.

The rate request was criticized by Andy McDonald, a member of Citizens for Alternative Water Solutions, which had pushed for a pipeline to bring treated Ohio River water from Louisville.

"We believe they chose the more expensive option and the ratepayers are going to be saddled with excess cost," McDonald said.

If the full amount asked for is approved by the PSC, the average residential bill would increase $7.02, to $29.96 a month. The PSC historically has given Kentucky American 50 percent to 60 percent of what it asks for.

Kentucky American said $7.9 million of the additional $18.5 million in revenue would be for the plant and pipeline.

Another rate increase is likely after the plant and pipeline are completed, Rowe said. The company has said it expects monthly bills to eventually increase by $8 to $10 for the plant and pipeline alone. Friday's rate request would cover less than half the plant and pipeline, even if the full increase were granted.

The current rate request also includes $4.1 million for pipes, pumps and valves elsewhere in the Kentucky-American system, $1.2 million for additional chemical costs, $600,000 for increased electricity costs and $4.6 million for labor, operations, maintenance and other costs.

Kentucky American last raised its rates on Dec. 1, when they went up 17 percent. The company had asked for a 29 percent increase.

It usually takes the PSC about eight months to reach a decision in a rate case, the company said. After six months, the company can start charging the rate it asked for, but has to refund money if the PSC allows a lower increase.

The state attorney general's rate intervention office, which represents the interests of ratepayers in cases, routinely intervenes in such cases and argues for lower rates.

In the last rate case, Kentucky American and the attorney general reached a settlement that was then approved by the PSC.

In April, after studying the issue for more than a year, the PSC approved Kentucky American's new plant and pipeline.

The Louisville Water Co. intervened in that case, arguing that it was best suited to augment Lexington's water supply with a pipeline that would follow Interstate 64.

The PSC ruled that proposal "never evolved beyond a series of concepts."

Kentucky American also faced stiff opposition from Citizens for Alternative Water Solutions, which included people who live along the route of the pipeline from Owen County to Lexington. That group is challenging the PSC decision in Franklin Circuit Court, but construction of the project continues.

Rowe said Friday that the project is about 20 percent complete.

A little more than half the pipeline route is on state rights of way. The company needs 109 easements to cross public land, and Rowe said Friday that 65 to 70 already are in place. He characterized about a dozen as "the ones we're having the most trouble with."

The company has the power of eminent domain, but seldom has had to go to court to condemn easements.

The citizens' group that is suing to stop the project also has asked a judge to clarify whether eminent domain allows a Lexington-based company to condemn land in Franklin County, where the pipeline faces the stiffest opposition.

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