2020-21 Regulatory Activity

In order to continue providing safe and reliable power to eastern Kentucky, rate increases are necessary from time to time. Kentucky Power’s goal is always to have as little impact on customers as possible.

Our 2020-21 rate case proposal was designed to be sensitive to customers who may be struggling during the pandemic. We recognize the downturn in the economy is affecting everyone, including the financial health of Kentucky Power.

Kentucky Power puts new base rates in effect for customers

Following a three-year freeze on base rates for Kentucky Power customers, the Kentucky Public Service Commission (PSC) issued an order setting new rates effective January 14, 2021.

To lessen the rate impact for customers, the PSC accelerated distribution of the excess unprotected accumulated deferred income tax (ADIT) resulting from the federal 2017 Tax Cut and Jobs Act. This will create a credit on customer bills helping to offset new rates. The credit will now appear over three years, rather than 18 years as previously established, and will be larger than credits previously issued, which benefits customers.

For example, a residential customer using 1,100 kWh per month will receive a bill credit during winter months of approximately $24.05. As a result, the average monthly winter residential bill will actually decrease to $114.50, a reduction of 4.54 percent.

In non-winter months, for a residential customer with an average monthly usage of 1,100 kWh, the average bill will increase $18.59, or 15.46 percent, from $120.26 to $138.85.

Commercial and Industrial customers will also benefit from bill credits resulting from the return of accumulated tax balances. Based on rate design created by the PSC’s order, some industrial customers, on average, will not see an increase in rates while other customers, including commercial class customers, may see up to a 4.7 percent increase on average. Business customers are encouraged to contact their Kentucky Power account manager for more detailed information.

The bill credit structure helps ensure customers receive maximum benefit during months where electrical usage is highest.

The order also reduced Kentucky Power’s return on equity (ROE) to 9.3% for base rates. The return on equity does not guarantee Kentucky Power a profit, but gives the Company the opportunity to earn a fair return on its investment. The overall gross revenue requirement increase approved by the PSC was $52.4 million.

Economic Situation for Eastern Kentucky and Kentucky Power

Kentucky Power customers are facing economic challenges in eastern Kentucky, mostly due to job losses in the coal and steel sectors. This started long before COVID-19 economic hardships. The company understands these challenges and does not take filing a base case lightly.

However, Kentucky Power also faces economic challenges because of the loss of load and customers. Between 2008 and 2019, the company lost more than 10,000 of its customers – approximately six percent. During the same period, the company has seen its total annual weather-normalized sales fall from approximately 7.4 GWh to 5.7 GWh – a loss of 23 percent. Population in the company’s service territory has decreased by approximately 33,000 individuals.

A significant portion of a utility’s expenses are fixed costs that do not vary depending on the amount of electricity sold. Examples of fixed costs are lines, poles, transformers and buildings. When a regulated utility loses customers, fixed costs are spread over fewer remaining customers causing the price of electricity to increase.

Kentucky Power works diligently to manage budgets, staff and costs to help make electricity as affordable as possible.

Creating more jobs and bringing more people to (and back to) the region is Kentucky Power’s chief economic development goal. In turn, more customers for the company produce reduced or stable rates for customers.

Kentucky Power is proud to take an active role in the communities it serves. In 2019, the AEP Foundation and Kentucky Power gave more than $1.7 Million in charitable contributions and economic development grants throughout our territory.

Kentucky Power is obligated to provide every customer in its service territory with safe, reliable electricity at rates approved by the Kentucky Public Service Commission. The company is permitted the opportunity to earn a fair rate of return; there is no guarantee of profit.

Frequently Asked Questions

What is a rate case?

Utilities in Kentucky are highly regulated, and all requests for rate adjustments must be approved through the Kentucky Public Service Commission. Rate cases are comprehensive and transparent legal proceedings that go through a multi-step process, with multiple parties involved. Often, it takes several months to reach a resolution. As part of the ratemaking process, Kentucky Power employees and consultants submit written testimony, respond to hundreds of inquiries through discovery, and serve as witnesses during hearings. The Kentucky PSC typically holds public meetings to seek customer input, explain the facts of the case, and work with external representatives who intervene in the case. Ratemaking is a transparent process through which all of the company’s expenses and revenues are subject to review.

Comprehensive documentation of the filing is available on the PSC’s website at: https://psc.ky.gov, where the hearings will also be available through live streaming. The public is also welcome to attend hearings and submit public comments. Due to COVID-19, there could be some limitations to in-person public meetings and hearings.

Why is Kentucky Power trying to increase rates while the economy is still recovering from the COVID-19 pandemic?

At the end of 2017, Kentucky Power agreed to a three-year stay out for base cases; this has essentially frozen base rates for three years leaving us without an opportunity to adjust rates to reflect current costs, load losses and other variables that drive rates. In order to fulfil our obligation of providing safe and reliable electricity, along with the company’s need to generate a reasonable financial return, a rate adjustment is necessary now. Absent a rate adjustment, Kentucky Power’s financial and credit metrics would continue to trend downward into a more unfavorable status. This would hamper the company’s ability to secure capital at competitive rates making required investments more expensive for customers in the long term, or worse yet prevent investments altogether.

We are understanding of the situation this creates for customers and took measure to minimize the impact. Load loss and delays in economic development projects have made it nearly impossible for the company to earn the authorized ROE (return on equity).

There have been a lot of storms and power outages lately. How is that paid?

Storm costs are always built into base rates established on historical weather and restoration events. In the case of a major multi-day restoration event such as the Easter 2020 storm, we will seek recovery through a special regulatory filing.

Other Information

Ways We Can Help

To support customers, Kentucky Power offers several ways to help customers lower their bills and use less energy. The most important thing customers having trouble paying their bill or other issues can do is contact us. We want to help. We are available anytime at 1-800-572-1113. We also are available during daytime hours on Facebook and Twitter. If a customer is struggling to pay his or her bill, Kentucky Power can offer extensions and payment plans to get customers through difficult times. Customers also can enroll in an Average Monthly Payment plan, which allows for a rolling 12-month average bill. This helps to limit spikes in bills during harsh winter months and hot summer months. Our COVID-19 business experts are ready to explain the essentials like payment assistance plans and applying for the stated and federal relief programs that fit your needs. Call our Business Solutions Center at 1-888-710-4237.

 

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This policy was last revised on December 13, 2017.

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