Consumers win small victories: PSC reins in water price increases

If there's one thing at which Kentucky American Water and its corporate parent in New Jersey excel, it's extracting money from Lexington consumers.

Rate increases are integral to American Water's strategy for returning impressive dividends to Wall Street investors.

The pattern of Kentucky American raising rates every couple of years, only to have the state Public Service Commission dial back part of the increase, has become familiar during the past two decades.

Last week's PSC ruling fit that pattern with some encouraging twists.

The PSC granted Kentucky American a rate increase that will amount to $6.9 million a year — little over half of what the company had requested.

One of the justifications Kentucky American offered for needing an extra $12.3 million a year was that consumers are using less water, which renews questions about why it insisted on building, and an earlier PSC approved, a $164 million treatment plant in Owen County with a pipeline to Lexington.

The PSC did not revisit that decision in last week's order, but it did put Kentucky American on notice to not assume that customers in Lexington will be required to pay for upgrades to other water utilities if Kentucky American continues to buy small water systems in need of extensive repairs.

The PSC specifically cited concerns about Kentucky American's purchase of the Owenton water system and the large outlays to get that system into shape. Lexington water customers are, in essence, subsidizing repairs to Owenton's and other waterworks acquired by Kentucky American.

The PSC wrote: "Kentucky-American's existing ratepayers should not be considered a deep pocket that is available in all cases to finance the improvements of acquired small water systems."

Although Kentucky American does not need PSC approval to acquire water systems, it does need PSC approval to raise rates. Before buying any more water systems, the PSC ordered Kentucky American to provide it with a 90-day notice, allowing regulators to review the deal to see how it will affect existing customers and rates.

The PSC rejected Kentucky American's request to raise Lexington's fire-hydrant rent by $600,000 a year. The PSC granted a $300,000 increase.

The PSC also wisely turned down two new rate adjustment mechanisms Kentucky American was seeking. It wanted to automatically pass along to ratepayers some capital costs, and the cost of chemicals and electricity without the scrutiny now required from state regulators.

Chalk up one small victory for consumers.

Lexington water customers can thank the Gray administration for taking a stronger stand than previous administrations have on water rate requests. The city hired experts to help develop its case, including raising the issue of unjustified costs to Lexington consumers from Kentucky American's expansion.

Mayor Jim Gray said: "I'm disappointed with yet another water rate increase, but I'm proud we were at the table, fighting for our citizens. I'm also glad Kentucky American will be paying back the higher rates they billed our citizens for before the PSC decision. That should be a lesson."

Gray is seeking to hire experts to help the city prepare for negotiating a new franchise agreement with Kentucky American in 2015. That should be an easy call for the Urban County Council. It's one of those instances when spending pennies could save Lexington thousands.