Kentucky American Water wants to raise water rates.
The Fayette County-based utility filed a notice of intent to file for a rate increase with state utility regulators on Oct. 23.
The move comes on the heels of the announcement of a new franchise agreement between the city of Lexington and the water company. That agreement — which was presented to the Urban County Council during a special meeting on Thursday and has not yet been approved — would give the company a five-year franchise with options for two five-year extensions. The current franchise agreement is for 20 years.
According to documents filed by lawyers with Kentucky American Water to the state Public Service Commission, the water company intends to file an application for a rate increase by Dec. 1. The Public Service Commission regulates utilities and sets utility rates.
The documents filed Oct. 23 do not say what the proposed rate increase will be.
Susan Lancho, external communications director for Kentucky American Water, said the company did not have a comment on the notice sent to the PSC because the rate increase request had not yet been filed.
Lancho said Kentucky American Water has been working with the city on a fair water franchise agreement for the better part of the last year. The franchise expired in April.
"Over the last nine or 10 months we have worked closely with city officials to come to an agreement that works best for our customers and the Lexington-Fayette County community," Lancho said. "Kentucky American Water looks forward to completing the process for a franchise agreement that is consistent with other recent utility agreements with Lexington-Fayette County, and is hopeful that the process will be completed soon."
Kentucky American Water last proposed a rate increase in December 2012. Its original proposal was to increase its annual revenue by $12.32 million. Under that rate plan, a residential customer using 5,000 gallons per month would have seen a monthly bill increase from $35.40 to $41.23, or by about 16.5 percent.
The Public Service Commission granted roughly half that increase in October 2013.
The average residential customer using 5,000 gallons per month saw their monthly bill rise from $35.40 to $38.95, an increase of $3.55, or about 10 percent. The utility's annual revenue increase was roughly $6.9 million.
The company said in its 2013 application that a rate increase was needed to recover the cost of capital improvements made since the last rate case in 2010.
Andrew Melnykovych, a spokesman for the Public Service Commission, said the commission looks at a variety of factors when it sets rates.
Kentucky American Water is likely seeking the rate increase because it is building a new water filtration plant off Richmond Road, Melnykovych said. Typically utilities file for a rate increase so it will coincide with an upgrade — such as a new filtration plant — coming online. Utilities are allowed to seek rate increases after major capital investments. But that doesn't mean the PSC will grant the entire rate increase.
"It is a fairly intensive accounting exercise," Melnykovych said of how the PSC sets rates. "Because they are an investor-owned company they are entitled to an opportunity to earn a profit. The commission has to balance the interest of the investors and the interest of the rate payers."
According to its web site, Kentucky American Water serves about 490,000 customers in 13 counties in Central Kentucky. The company also is a wholesale water provider to 12 communities in Central Kentucky.
The city first must advertise for bids for its water franchise. The Urban County Council won't take a final vote on the advertisement for bids until early December. It's likely Kentucky American Water will be the sole bidder. After the bids are received, the council will vote again to approve the franchise agreement.