The Kentucky Public Service Commission’s recent ruling on Kentucky Power’s rate case is a mixed bag in terms of wins and losses for 165,000 customers served by the investor-owned electric utility. While the overall increase approved was far smaller than what the company initially sought, several elements of the decision will negatively impact affordability and resilience for residential and commercial customers.
Change in Rate Design for Homes
The biggest shift comes in the rate design itself. The PSC approved a “declining block” rate structure for residential customers, meaning that the rate goes down the more power you use. Residential rates will go up by 20.3% for tier one (the first 600 kWh), and down by 9.8% for tier two (all usage above 600 kilowatt hours).
At the same time, the fixed meter charge now will increase with usage, from $24 per billing period for customers using 0-2,000 kWh (a 20% increase) to $38 for those exceeding 2,000 kWh (a 90% increase). This means that residential customers will be rewarded for lowering usage through their meter fee, but penalized through the rate changes.
This mixed message leaves customers who have worked hard to get their usage below 600 kWh (e.g. turning off lights, setting back their thermostat or making other upgrades) confused and discouraged because now people who use more energy get to have a lower rate for most of their energy use, undercutting customers who have worked to be more efficient in their energy use. This is why declining block rates are something that our coalition of intervenors, like other advocates concerned with lowering residential energy costs and rewarding energy efficiency, opposed.
Small Business Impacts
Small commercial customers face a different challenge. General Service customers will see a 44% increase in demand charge rate and a 5.1% energy charge rate increase. Large commercial users, like grocery stores and schools, will have their rate go up by 7% and demand up by 10.5%. Meter fees also increase by 10.7% for general service and 7.2% for large users.
The demand charge is an additional charge for commercial customers determined by the maximum power pulled through the meter in a 15-minute period over the course of a billing period, so the more power used at once, the higher the “demand.”
For businesses without knowledge or flexibility on ways to control their demand usage (through actions like smart thermostats and behavior changes), these increases will be quite costly. One of our clients will see a $4,000 per year increase in their demand charge alone.
Incentive Programs Will Continue
Despite the Kentucky Attorney General arguing that all demand-side management programs (like home energy audits and energy efficiency rebates) are unlawful, the PSC firmly rejected this claim and confirmed that these programs lower overall generation costs for all customers.
Demand-side management programs help customers make energy-saving upgrades that lower the cost of their bills. When rates go up, these programs are even more important. Customers should take full advantage of these programs offered by Kentucky Power, especially the one that offers direct installation of small efficiency measures and a free energy assessment for homeowners. Doing that will lower peoples’ bills, and show the PSC that there’s a demand for these programs and that Kentucky Power should spend more – not less – on similar programs in the future.
Utility Disconnections
Beyond the rate changes, the PSC approved FlexPay, which can help customers manage electricity costs by offering more control over payments. However, they also granted Kentucky Power a variance from standard disconnect notice requirements, meaning that FlexPay customers can have their power shut off remotely with little notice if they fail to make a payment. The tariff on FlexPay notifies the customer at $25 balance and again at $0 balance. If $0 balance, the customer has until the next business day to reestablish a positive balance or the meter will automatically disconnect during normal business hours. While the company has provided more information on program safeguards than in prior filings, our coalition has concerns about customer protections, especially for the many households already struggling to afford their bills.
Solar Impacts
One notable win is what did not change for customers who have solar or decide to add it in the future. Net Metering Service II remains unchanged, continuing to use billing-cycle netting with the same credit values. However, the tariff now explicitly states that earned credits are not transferable to a new account holder when an account is closed. This could be a reason to list multiple family names on an account to preserve credit value over time.
Looking Ahead
During the public comment period for the rate case, an often-heard concern from ratepayers was how Kentucky Power got into such a bad financial position, and why their customers have to foot the bill to bail them out. The PSC also appears to have the same questions, and ordered a new management audit of Kentucky Power, citing extensive concerns about system maintenance and management practices, and also disallowed certain executive compensation packages benefiting shareholders rather than customers.
The PSC also acknowledged concerns that securitization shifts risk entirely from the utility to customers. Securitization is when utility companies pay for big projects—like closing old power plants or building new ones—by issuing bonds to finance them, and the cost of retiring those bonds are then added to customer’s bills in the form of special charges. Even before this rate case ruling, Kentucky Power customers already had a relatively new large surcharge on their bills for securitization approved by the PSC in the past.
And, this legislative session, Kentucky lawmakers introduced a bill that would give the utilities further securitization authority with less oversight in HB 535. The risk with securitization is that if the project doesn’t actually save money, or if costs go up, customers are still on the hook. The utility company gets its money upfront and passes the long-term repayment responsibility to customers, not shareholders. So even if things don’t go as planned, customers are the ones who end up paying to retire the bonds.
It is important to note that the company has asked the PSC to reconsider some aspects of the filing, all of which are highlighted here. Additionally, in the near future, Kentucky Power plans to file for approval of a new 450 MW gas plant, which will be paid for by ratepayers in future rate cases. Kentucky Power is currently requesting approval from the PSC to spend approximately $95,500,000 for cooling tower repairs at the Mitchell Generating Station in West Virginia to also be paid for by customers.
How Mountain Association Can Help You
Any way you slice it, Kentucky Power is in a tough financial situation and they serve some of the counties with lowest per capita income in Kentucky. Our coalition believes one of the best ways for them to help customers and moderate future rate increases is to invest in more efficiency and conservation, and less in new generation. We will continue to advocate for the region in any rehearings of this case and future cases.
Meanwhile, our energy experts are here to serve you. If you’re concerned about the impacts of this case on your business or organization, we can provide a free billing review and free savings consultation; fill out our short application to get started.
