Kentucky Power is appealing a decision by the Kentucky Public Service Commission to lower rates from the amount the company had requested and accelerate distribution of $40 million in customer credits accrued as a windfall from the 2017 federal tax cut.
Despite the cuts in what the company requested, it will still make more money. The rates approved by the PSC amount to about a 12.5 percent increase for residential customers and 12 percent for businesses. The company had sought an increase of 25 percent. Kentucky Power reported a net income after taxes of $27.9 million during the first nine months of 2020, $619.4 million for all of 2019, and it had sought an increase of $70.1 million. The PSC will allow the company $52.4 million more under the rate order.
Kentucky Power has filed an appeal.
The credits the company is required to return to customers represent deferred income taxes the PSC had previously approved but that Kentucky Power will no longer be required to pay after the tax cut.
The company had planned to take 18 years to spread the $40 million credit to its 166,000 customers, however, the PSC ordered it to pass the benefit on in just three years. Residential customers who use 1,100-kilowatt-hours will see a credit of $24.05 per month during winter months as a result of the change, but will pay $18.59 more in electricity rates.
The PSC also reduced the Return on Equity (ROE), the shareholders’ allowable profit margin. The PSC reduced the ROE to 9.3 percent from the 10.0 percent the company had proposed, a move that reduced Kentucky Power’s increase in annual revenue to $52.4 million from the $70.1 million proposed in the rate application. The ROE was reduced even further for the Big Sandy Decommissioning Rider and the Environmental Surcharge.The PSC ruled that because of lower risk, an ROE of 9.1 percent was reasonable. Though the company often explains surcharges as “expenses,” each also includes a percentage of profit.
The PSC delayed a decision on net metering rates. Kentucky Power had asked to reduce the amount it pays for excess power from rooftop solar systems and other home generation systems by 75 percent, effectively discouraging customers from generating their own electricity. It was also denied the right to install an advanced metering system, the cost of which would have been charged to customers, plus a 10 percent profit. Sales to other power companies, 25 percent profits from which had been reserved for shareholders, were also restructured by the PSC, requiring margins from those sales be reserved for ratepayers.
The final order in the case was filed January 14, and the company has since appealed. The increases and the appeal are opposed by the Mountain Association, Kentuckians for the Commonwealth, the Kentucky Solar Energy Society, Walmart, and the Kentucky Attorney General’s Office.
While the case was being argued, Kentucky Power filed a plan to track late fees the PSC prohibited it from collecting because of the COVID-19 pandemic. Kentucky Power said in the November 30 motion that it had lost $1,875,587.52 in residential late fees and projected an additional $606,510.85 foregone revenue residential late fees through the end of 2020. It also said it had forgone $1,350,464.75 in commercial and industrial late fees through October 30, 2020.
The company planned to treat those late fees as “regulatory assets,” and recover them from customers at a later date.
The PSC also denied that request.