Rate Case Roundup: Kentucky

Responding to an electric cooperative's request to raise its rates by close to $2 million, the Kentucky Public Service Commission has concurred with almost all of the co-op's rate plan, reducing the authorized increase by a mere $730 compared to what was listed in the initial petition.

The co-op, Shelby Energy Cooperative, had suggested an increase of $1,997,640. After examining the evidence and various party positions, the commission consented to an increase of $1,996,910. Stressing that its rates had not been adjusted in seven years, the coop conveyed that it was in need of additional revenue. It averred that because it has no generating assets of its own and must purchase all of its power supply from others, its present revenue requirement was no longer sufficient to cover those costs. The co-op similarly contended that its current monthly customer charge was inadequate to cover all of its fixed costs.

In support of its claims, Shelby reported that its test-year rate of return was just 1.45% and that its underlying times interest earned ratio (TIER) was a slim 0.71X. The co-op averred that it needed a return of at least 3.83% and that a TIER of 1.88X was the minimum that would support such a return. The co-op pointed out that many of its mortgage and other financial agreements mandate that it maintain a TIER of at least 1.25X.

In permitting the co-op to raise its rates, the commission acknowledged the TIER factor. It stated that the increase approved for Shelby should yield a TIER of 1.86X, which in turn should result in a return of 3.92%. The commission declared both such values reasonable and consistent with the co-op's outstanding financial obligations. The commission also concurred with the co-op that its monthly charge for most of its customers should rise. Saying that it is appropriate for any utility to recoup more of its fixed costs through set monthly charges, the commission permitted the co-op to assess a new residential customer charge that is 50% higher than the previous structure. Under the revised structure, the co-op's residential customers will now pay $15 per month rather than $10.14. Commercial customers likewise will see increases, but by a lesser percentage, ranging from 18% to 38%, depending on whether the customer takes single-phase or threephase service. The co-op's large power customers will not see any increase in their monthly charge.

One issue on which the co-op and the commission disagreed was the treatment of certain post-employment benefit plans. Consistent with holdings in other recent utility rate cases, the commission disallowed from the co-op's rates contributions made by Shelby to select pension and other retirement savings plans for managerial and executive personnel who were already participating in other co-op-sponsored pension plans. The commission commented that ratepayers should not have to pay for defined benefits packages provided to longtime employees while simultaneously shouldering the costs of the co-op's matching contributions to those employees' 401(k) plans.

As a final matter, the commission instructed the co-op to improve the billing format for those customers taking service via prepaid meters, so as to offer more clarity. More specifically, the commission told the co-op that bills for prepaid customers should list only the applicable daily customer charge and should no longer also include the monthly charge assessed all other customers. Re Shelby Energy Cooperative, Inc., Case No. 2016- 00434, July 31, 2017 (Ky.P.S.C.).