Lawmakers should say ‘no’ to corporate money grab by Kentucky American Water

Voters in Rockcastle, Madison and southern Fayette counties should ask their state senator, Jared Carpenter, why he wants consumers to pay more for tap water so a corporation in New Jersey can pocket an unearned bonanza.

No one — including its co-sponsor Sen. Paul Hornback — had anything good to say about Senate Bill 163 after Lexington Mayor Linda Gorton and others shed much-needed light on the measure last week.

The bill would allow Kentucky American Water, a Lexington-based subsidiary of New Jersey-based American Water, to raise rates by inflating the value of smaller utilities it is buying. KAW has been acquiring utilities at a fairly rapid pace, including in Rockcastle County.

Kentucky American also has been blitzing lawmakers, employing 10 lobbyists this session.

Last week, after learning more about the bill’s likely effects, Hornback, R-Shelbyville, the co-sponsor, told the Herald-Leader that he would ask Carpenter, R-Berea, the primary sponsor, not to push SB 163 this session. “I’m not happy with it,” Hornback said.

But, lo and behold, there it is on the agenda of the Senate Natural Resources and Energy Committee at 11 a.m. Wednesday, Feb. 20.

In a statement of opposition last week, Gorton’s main objections were to the bill’s harmful economic effects and also that ratepayers in Lexington, who already are footing the bill for KAW’s overbuilding and overcapacity, would also be expected to fund the for-profit company’s expansion. “Citizens in Lexington should not be forced to pay for water for citizens in other counties,” Gorton said.

It’s not just Lexington consumers who would face unnecessary rate increases, however. Customers of the smaller utilities being acquired also would suffer unjustified costs if SB 163 becomes law.

No wonder the board of the Kentucky League of Cities has gone on record against it.

Kentucky American is seeking a change in the way rate-makers at the Public Service Commission establish the value of a newly-acquired utility. Traditionally, it’s based on the original cost minus depreciation due to wear and tear. SB 163 would allow future rates to be based on “fair market value” as determined by three appraisers (two chosen by the utilities, one by the other appraisers) who would consider comparables.

Problem is, as Tom FitzGerald of the Kentucky Resources Council explains, there is no market for municipal utilities and no comparables. The “theoretical value,” which would likely be higher than the book value, would become part of the utility’s rate base, thus a justification for future rate increases.

Customers of a municipal water or sewer utility bought by Kentucky American would “be paying again for the same system by paying a portion of the costs of the system and KAWC’s (Kentucky American Water Co.’s) return on investment — in effect paying twice for the former municipal system,” explains FitzGerald in a letter to the Senate committee.

The PSC already has the discretion to do what KAW is asking; however, the burden of proof is on the utility to justify that an investment above book value is in the public interest. Lawmakers should keep it that way.

Kentucky American argues that consolidation or “regionalization” can deliver economies of scale that benefit consumers. Experience in other states shows that what Kentucky American is seeking also drives up rates.

Kentucky American doesn’t need incentives to expand; expansion is part of its parent’s corporate strategy. SB 163 is a brazen grab for dollars from households and businesses in Kentucky to pad corporate earnings.