American Electric Power‘s (NYSE:AEP) Kentucky Power on Nov. 22 said that it has reached a settlement agreement with most of the groups that are part of its base rate review filed with the Kentucky Public Service Commission.
The settlement decreases the company’s revenue requirement request by $28.6m to an overall total increase of $34.7m, the company said, adding that in its original request filed in June, it had requested $69.6m, which was reduced to $63.3m after the successful refinancing of some long-term debts.
The settlement proposes rates based on the opportunity to earn a return on equity of 9.75%, and it provides a mechanism for the company to recover 80% of its mandatory federal transmission expenses, the company said.
Interveners in the rate review who reached the settlement with Kentucky Power are the Kentucky School Boards Association, Kentucky League of Cities, Kentucky Industrial Utility Customers, Wal-Mart and the Kentucky Cable Telecommunications Association, the company said, adding that the Kentucky Attorney General’s Office of Rate Intervention and the Kentucky Commercial Utility Customers did not sign the settlement.
As a result of the balance provided by the settlement, the company agreed that if the settlement is approved by the commission, then it would not seek an update to its general base rates until at least 2021.
The commission has scheduled hearings about Kentucky Power’s rates for Dec. 6, 7, and 8 in Frankfort, the company said, adding that if approved, the new rates would go into effect in mid-January.
Under the settlement, the residential customer rate would increase about 9%, Kentucky Power said, adding that the original rate adjustment filing had residential customer rates increasing about 16%. Commercial and industrial customer rates would increase 3% to 7%, down from a requested 7% to 14%, based on usage, the company said.
The ability to lower the rate request in the settlement from the original filing is due in part to a $50m deferral of expenses related to the generation of electricity at the coal-fired Rockport Plant in Indiana, the company said.
The settlement also decreases residential customer monthly contributions to the economic development program from 15 cents to 10 cents, and increases commercial and industrial customer contributions to $1, Kentucky Power said, adding that it will continue to match all economic development fees collected from customers to generate nearly $1.1m a year to invest back into eastern Kentucky.
Other provisions of the settlement include the extension of the Coal Plus program to assist in the opening of new coal operations in the region, the company said.
As noted in the settlement testimony of Kentucky Power President and COO Matthew Satterwhite that was filed with the commission, the Coal Plus program is set to expire at the end of 2017. Earlier this year, the commission approved an effort by the company to remove barriers to the opening and re-opening of coal operations, he said, noting that the commission “approved Tariff C.S.-Coal, and the amendments to Tariff C.S. – I.R.P., as well as Tariff E.D.R.,” through Dec. 31, 2017. Satterwhite said that the settlement seeks to extend that framework for another year, adding that there are customers already taking advantage of the Coal Plus program and others have expressed an interest.
As noted in a Sept. 5 Kentucky Power statement, the company received permission from the commission to launch the Coal Plus program to alter its rate structure to offer custom contracts to coal businesses struggling to stay open or reopen their mines. The plan gives the company flexibility in designing special contracts with coal companies and coal processing businesses, such as providing a discount for companies that agree to operate under an interruptible rate, the company said.
Among other things, Kentucky Power noted in its Nov. 22 statement that the settlement includes bill formatting changes and approval of a new singular pole attachment rate.
The company also noted that the settlement maintains proposed funding for the Home Energy Assistance Program to assist low-income customers, the proposed elimination of an employee discount and scales back vegetation management spending.
Satterwhite said in his testimony that the company has faced multiple financial challenges since its last base rate case, and that it has sought to address those challenges over the longer term through its economic development efforts.
While those efforts have borne fruit as evidenced by certain economic development successes, those successes do not address the company’s need for financial relief in the near term, he said.
“The settlement agreement represents a fair and proper balance between Kentucky Power’s right to a fair return on its investment and the requirement that customers be charged fair, just, and reasonable rates,” he said.