Fayette County

Water company seeks 37% hike

Kentucky American Water asked Friday for a 37 percent rate increase, the lion's share of which would go toward the cost of a new treatment plant scheduled to be ready late this summer.

The increase would raise the Lexington-based company's overall revenues by nearly $26 million a year. An average customer using 4,470 gallons of water a month would see the bill go from $25.46 to $34.90 a month, the company said.

Lexington Mayor Jim Newberry released a statement saying that he was "strongly opposed to such a request," especially since the company's last increase was only nine months ago.

In 2008, Newberry had supported Kentucky American's proposal for the new plant and pipeline while some Urban County Council members wanted to explore the possibility of piping treated Ohio River water from Louisville.

"While we recognize that any solution to our city's water supply issue would have triggered an increase in rates, this proposal will impose a hardship on many Lexington families," Newberry said Friday.

Company spokeswoman Susan Lancho defended the request.

"There's never a good time for a rate increase," she said. "There would never be a good time to not have sufficient water resources for our community, either."

Lancho said the $162 million treatment plant under construction on the Kentucky River north of Frankfort and 31-mile pipeline to carry water to Lexington are a "much needed project" that will solve periodic water shortage problems that the company has faced for more than 20 years.

The plant will be able to treat 20 million gallons of water a day and is expected to meet Lexington's water supply needs through 2030. In winter months, or wet summers like last year's, it will treat and pump a minimum of 6 million gallons a day. If there is a drought, the amount treated will increase.

Most of Kentucky American's customers are in Lexington. The company also serves parts of Bourbon, Clark, Harrison, Jessamine, Scott and Woodford counties. A smaller northern division supplies parts of Owen, Gallatin and Grant counties.

The rate increase request was filed with the state Public Service Commission, which usually studies such requests for several months before reaching a decision.

The company's last rate increase was an 18 percent rise last June. It was approved seven months after the company requested a 32.5 percent increase.

In that case, a settlement was reached between Kentucky American and the attorney general's office, the Community Action Council (which represented low-income customers), and the city of Lexington.

The settlement was approved by the three-member PSC in an uncommon split decision. 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.

When Kentucky American asked for that increase, it said it wanted to prevent the "rate shock" of asking for money for the plant and pipeline all at once.

The parties to the settlement said at the time that they would not object to the next request on the basis of rate shock. But the PSC, in approving the settlement, pointedly noted that it had 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.

In the current case, the company may raise its rates if the PSC has not ruled on the request by Sept. 28, but it runs the risk of having to make refunds if a smaller increase is allowed.

Historically, the PSC has allowed Kentucky American to collect 50 to 60 percent of its original requests.

The PSC approved the plant and pipeline in 2008. A lawsuit challenging that approval is before a judge in Franklin Circuit Court. Judge Phillip Shepherd heard arguments in the case last November, but hasn't rendered an opinion.

Lancho said that the treatment plant in Owen County is about 75 percent complete. A pump station in Franklin County is 95 percent complete. Despite opposition from people along the pipeline route, all 31 miles of pipeline are in the ground, Lancho said, and restoration work is under way.

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