PSC to hear comments on water rates

On Wednesday, Kentucky American Water's customers in Lexington and surrounding areas will have a chance to say what they think about the company's request to raise rates nearly 38 percent.

Meanwhile, a judge has backed the Public Service Commission's 2008 decision that allowed Kentucky American to build a new $164 million treatment plant and pipeline that the lion's share of the proposed rate hike will pay for.

The plant is on the Kentucky River north of Frankfort, where there is more flow than at the current plant near Lexington.

The company says the new plant will meet customer demands through 2030 and will provide more water when droughts hit.

But having more water will mean paying more for it.

The company wants to raise residential rates 37 percent and overall rates by an average of 37.7 percent. Historically, the PSC has given Kentucky American 50 percent and 60 percent of what it asks for.

Ralph C. Smith, an expert hired by the state attorney general's office, which represents rate-payers in such cases before the PSC, has calculated the company should get a 20 percent increase.

David Barberie, an attorney for the Lexington, said in a memo to Mayor Jim Newberry and the Urban County Council that "all the evidence filed in this matter would indicate that (Kentucky American) is entitled to an increase of at least" 20 percent.

Assistant Attorney General David Spinard confirmed last week that there have been settlement talks with Kentucky American, but no agreement has been reached.

If the increase is granted in full, the average residential bill would rise from $25.44 to $34.88 a month. That's about double what rates were in 1995.

When the company asked the PSC in March 2007 for permission to build the project, it estimated bills would rise $8 to $10 a month.

Some of the plan and pipeline costs were in an 18 percent increase the PSC approved last year after the utility reached a settlement with other parties to the case, including the attorney general's office.

That increase included about $20 million of the project's cost, adding 87 cents to the average bill, the company said.

If the company got its full request this time, $8.50 of the average $9.44 rise would go to the plant, which means customers would be paying $9.37 a month more for the plant and pipeline.

That money for the capital costs of the project would stay on bills for the life of the project's assets, or about 50 years, the company said.

When the three PSC commissioners come to Lexington on Wednesday, they will be looking for comments that go beyond "I don't want my bill to go up," said PSC spokesman Andrew Melnykovych.

"The standard for rate cases is whether the rate is fair, just and reasonable, and if not what is fair, just and reasonable, so comments that address that are most helpful," he said.

Newberry, who supported the Kentucky American project but says the rate increase is too much, plans to speak at the public meeting.

"Clearly, a rate increase of this size would impose a hardship on many local citizens," he said in a statement Monday.

Vice Mayor Jim Gray, who is challenging Newberry for the city's top job, also plans to speak, and he said he will point out that the city originally was told the Kentucky American project would serve towns outside Lexington.

"Already earning big profits, Kentucky-American is asking our citizens to finance their bad decision," he said in a statement.

A formal hearing, with less opportunity for public comment, will begin Aug. 10 in Frankfort. It is expected to last several days.

Melnykovych also said the PSC is gratified that a judge supported its 2008 order that said Kentucky American could build the plant and pipeline.

Although it supported the PSC, the 21-page opinion by Franklin Circuit Judge Phillip Shepherd said a better plan might have been devised if other state agencies had done their jobs.

He specifically mentioned the Kentucky River Authority, the secretary of the Environmental and Public Protection Cabinet and the state Division of Water, which failed to provide "any clear guidance, or plan of action" for using the state's water resources.

A group called Citizens for Alternative Water Solutions challenged the PSC's decision to approve Kentucky American's plan. Many of the group's members owned land in Franklin County along the pipeline route.

Kentucky American says all the pipe has been laid, and the plant will begin sending water to Lexington by late summer.