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E. Ky. Power rates to rise 7%

The state Public Service Commission approved a 7 percent rate increase Tuesday for East Kentucky Power Cooperative, whose 16 co-ops provide electricity to a half-million homes, farms and businesses in Central and Eastern Kentucky.

Typical residential customers will see their monthly bills rise between $5.60 and $6.75 on average, according to figures from the utility and PSC. The new rates become effective Wednesday.

The rate increase is tied primarily to the co-op's new $528 million coal-fired power generating unit at its Spurlock power station in Maysville. The increase also strengthens the co-op's financial position, which has deteriorated in recent years. The co-op lost money during 2004 and 2005 and narrowly had a profit in 2006.

This rate increase, which totals $59.5 million overall, is the third time in as many years that customers have seen their bills increase. In 2007, the PSC allowed East Kentucky Power to increase rates by $19 million to help ease financial troubles. That increase resulted in about $1.50 to $2 more a month for an average residential customer.

In 2008, the PSC approved a plan that will see bills increase as much as $5 a month in the coming years as the co-op completes a series of environmental projects to comply with a settlement reached with the federal Environmental Protection Agency. The co-op also agreed to pay a $750,000 fine as part of that case, in which the EPA alleged it modified its plants without proper permits or without using the newest technology.

Late last year, the co-op announced it would seek another rate increase to further solidify its financial shape.

"On an annual basis with our lenders, we have certain financial tests and measures we have to meet to stay in their good graces, and this rate increase will certainly help us do that in the next few years," said co-op spokesman Nick Comer.

Before bringing the new power generator online this week, East Kentucky Power had been purchasing power from other utilities, a costly solution to its needs. Some of those needs are due to high power demands, and some came from unexpected shutdowns at its facilities.

"It's certainly more affordable to be able to generate that power," Comer said. The new generator is expected to lead to cost savings for customers that will partly offset the rate increase.

East Kentucky Power had asked for $15 million more than the PSC granted. The co-op reached the lower amount as part of a settlement with the state attorney general's Office of Rate Intervention, which represents consumers, and the Kentucky Industrial Utility Customers, a group representing state industrial companies.

The co-op has planned a few more rate increases for coming years as part of a "plan of remedy" it submitted to the federal Rural Utilities Service in 2007 because of concern about its financial condition.

That condition is still a cause of concern, prompting the PSC in December to order a comprehensive management audit of the utility. At the same time, the PSC bent its rules and allowed the co-op to shift money between certain accounts to make certain it could continue to get new loans if needed and not have to pay higher interest rates.

Selection of a consultant to conduct the management audit is under way.

The co-op continues to face opposition from environmentalists who say it relies too much on coal and not enough on energy efficiency programs that they contend could meet much of its power needs.

East Kentucky Power says that it offers a variety of energy-efficiency programs but that they are not enough to meet the power needs, a view met with skepticism by some.

"In this economic climate, to be sinking that much money into a new facility they might not really need does not really seem practical," said Elizabeth Crowe, director of the Kentucky Environmental Foundation. "If you look around the country and other utilities in Kentucky, many are moving much further ahead with efficiency programs than EKPC."

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