Fayette County

Lexington council approves new franchise agreement with Kentucky American Water

The Lexington Urban County Council gave final approval Thursday to a five-year franchise agreement with Kentucky American Water. It will replace a 20-year agreement that expired in April.

The council voted 13-0 to approve the agreement. Kentucky American Water was the sole bidder. There was no discussion before Thursday night’s vote. The council had discussed the terms of the franchise agreement at length during a November special meeting about the franchise agreement. Council members Shevawn Akers and Richard Moloney were not present at the Thursday meeting.

The new agreement has the option for two additional five-year extensions. The franchise agreement does not set rates but allows the water company to provide water services to Fayette County residents.

In addition to a shorter franchise term, the new agreement increases penalties for non-compliance of the terms. It keeps the franchise fee — the amount Kentucky American Water pays the city — at the same rate: 3 percent of the company’s gross revenue.

The city has the option to increase the franchise fee to 5 percent over the next five years. However, the water company is allowed under state law to pass that increase to its customers.

The relationship between the city and the water company has been tense and rancorous at times. Frustrations over water rate increases and other problems nearly a decade ago led to a failed attempt by the city to take over the water company.

The franchise agreement mirrored those the city has with Kentucky Utilities, Columbia Gas and Time Warner Cable.

Kentucky American wanted a much longer franchise agreement, which is one of the reasons negotiations dragged on long past April, lawyers for the city have said.

The previous franchise agreement had financial penalties for non-compliance. Under the new agreement, those fines will increase from $100 a day to $500 a day.

Kentucky American Water filed notice last fall that it was going to seek a rate increase with the state Public Service Commission. The commission decides if utilities can raise rates. However, the company later withdrew its notice. It filed another notice of intent to file for an increase on Dec. 15, according to the Public Service Commission.

The company has not filed its request for a rate hike yet. That request will say how much the water company wants to raise water rates.

Beth Musgrave: 859-231-3205, @HLCityhall