State regulator probes EKY utility, cites ‘serious questions about its judgment’
State regulators have launched an investigation into an Eastern Kentucky investor-owned power company after a series of rate review cases that have “raised serious questions about its judgment.”
The Kentucky Public Service Commission ordered an independent audit of Kentucky Power Inc., the American Electric Power subsidiary that generates, transmits and distributes electricity to about 162,000 customers in 20 of Kentucky’s easternmost counties.
Members of the panel responsible for overseeing water, electricity and gas providers in the commonwealth are zeroing in on Kentucky Power’s repeated efforts to sustain its investment in an aging West Virginia coal-fired power plant the PSC first denied in 2021 and then “reluctantly” signed off on late last year.
At the time, the PSC accused Kentucky Power of waiting out the clock in order to force the independent agency’s hand, leaving regulators with two bad options: Continue investing in a 54-year-old plant or “allow Kentucky Power customers to be at the mercy of a volatile market,” PSC Chair Angie Hatton said in a written statement.
Just three months later, the PSC took the rare step of overruling a private settlement that would have lowered a proposed 15% rate hike to 12% spread out over three years. Regulators capped the residential base-rate increase at 6%, reducing the total revenue Kentucky Power had hoped to raise by nearly half.
The strain that put on customers in some of Kentucky’s most impoverished rural mountain communities was compounded by a bond-purchase surcharge that hit bills in July.
Now, the PSC says it’s taking a step back to review a number of concerns the Kentucky Attorney General’s office raised in February when it appealed on the agency to block Kentucky Power’s latest base rate increase outright—concerns the PSC said deal with “whether the utility is managing its system appropriately.”
Kentucky Attorney General’s office steps in
The AG’s office has already intervened in the case that put Kentucky Power on notice of the impending audit. That will give AG Russell Coleman’s staff the opportunity to weigh in and ask questions on behalf of customers, especially if the review uncovers things the PSC opts to investigate further.
Regulators say they intend to make the results of the probe public, plus findings and suggestions, “if necessary, to improve Kentucky Power’s management practices.” The PSC said it reserves the right to open more investigations “to address any further issues” following the audit.”
The company said it “respects” the PSC’s decision to conduct a management audit and “welcomes the opportunity to participate in the process.”
“As a regulated utility, independent oversight is an important part of serving our customers and maintaining public trust,” said Kentucky Power Communications Manager Sarah Nusbaum in a statement to the Herald-Leader. “We will fully cooperate with the Commission and its selected consultant throughout the audit.”
Kentucky Power and the decline of the coal economy
Kentucky Power serves “one of the most challenging electric service territories in Kentucky” Nusbaum added. The company’s employees “work every day to safely deliver reliable electric service across eastern Kentucky.
Kentucky’s portion of central Appalachia has been hit hard by the structural decline of a once-vibrant coal economy. The loss of jobs and heavy industry has contributed to broad population decline across much of the region, leaving fewer customers responsible for paying upkeep on a massive electrical grid that crosses some of Kentucky’s most rugged terrain.
Over the past 14 years, Kentucky Power has lost some 12,000 residential customers and 38% of its industrial power base, the PSC said in its March order approving the 6% rate hike.
“We are always looking for ways to strengthen our operations and improve the experience we provide our customers, and we believe this process provides another opportunity to do that,” Nusbaum said in her statement.
The company declined to speculate on the outcome of the audit as it is just beginning.
Electricity costs on the rise
The Kentucky Power probe comes as electricity costs in the commonwealth are on the rise and facing unprecedented scrutiny over their dealings with data center brokers that want cheap land and electricity in the Bluegrass State.
Kentucky Power, which already charges its customers the highest rates in the state, recently penned a landmark deal with TeraWulf Inc. to bring online what could be the state’s largest artificial intelligence computing hub in Eastern Kentucky, powerful enough to electrify a city the size of San Francisco.
