2020 Regulatory Activity

We’re committed to providing essential power to the region in good times and bad and doing everything we can to help.

With the economic situation in eastern Kentucky worsened by the COVID-19 pandemic, Kentucky Power is taking steps to ease the impact of a future rate increase.

New and Flexible Payment Option

Kentucky Power submitted Flex Pay and AMI proposals to the Commission on June 29, 2020, as part of a base rate adjustment request. If approved, residential customers using around 1,250 kilowatt-hours per month would see an estimated increase of about 77 cents per day.

Kentucky Power is proposing an additional payment option called Flex Pay. The voluntary Flex Pay option would allow customers the ability to pre-pay accounts to help them budget their monthly electricity costs. Customers participating in the Flex Pay program would not have to pay security deposits or late fees. In order to offer this program, new electric meter technology, Advanced Metering Infrastructure (AMI), would need to be installed. AMI would provide customers with more information to better manage their electricity usage, and reduce restoration times during outages.

Deferred Rate Increase until January 2022

In the requested base rate adjustment, Kentucky Power is proposing to delay any increase customers would have to pay until January 1, 2022 by using an additional portion of the accumulated federal income tax balance to offset the increase.

The Kentucky Public Service Commission (PSC) regulates Kentucky Power; the PSC must review and approve all regulatory activity including the steps listed above.

For more information about the 2020 base rate case: https://psc.ky.gov/PSC_WebNet/ViewCaseFilings.aspx?Case=2020-00174

Advanced Metering Infrastructure (AMI) Needed

Significant customer benefits exist within Kentucky Power’s base rate case. The Grid Modernization Rider proposes Advanced Metering Infrastructure be installed throughout the service territory. Over the last decade, AMI has become the industry standard for metering due to the continued advancement of technology and wireless communication. AMI meters are now widely considered an integral, essential and required component of the electric grid in order to provide reliable and cost-efficient service to all customers. The current meter technology (AMR) is outdated and obsolete.

Customers gain the advantage of AMI’s two-way communication in more ways than just keeping them informed of their usage. AMI meters will also communicate to Kentucky Power when power is lost, allowing the Company to more quickly identify the location of an outage and restore power faster.

Ultimately, the change to AMI enhances the customer experience. With current meters, the customer receives 12 data points a year, meaning Kentucky Power reads meters once a month. With AMI, customers will have access to a meter reading every 15 minutes, so they can determine usage trends including highest time of usage and what uses the most electricity in the home.

The new meters improve customer service providing remote meter reading and remote handling of some customer requests, such as service connections, service transfers or disconnections.

In addition to more timely service connection or disconnection, the Company instantly knows when power is out and can quickly dispatch a crew to the site reducing outage times.

Proposed Flex Pay Program

Helping customers manage costs is more important now than ever before. Kentucky Power is introducing an additional payment option called Flex Pay offering customers the ability to pre-pay energy costs, ultimately providing more control and better payment management.

Voluntary participation in Flex Pay also eliminates security deposits and late fees. With Flex Pay, electric usage is calculated and deducted from a prefunded account on a daily basis, similar to a prepaid phone account. Customers choose the amount, method and frequency of payments.

Operating a pre-paid program requires new meter technology. Advanced Metering Infrastructure (AMI) implementation allows two-way communication between the Company and meter, providing customers the ability to better manage energy usage. AMI also alerts the Company in the case of an outage.

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, however, and are doing everything we can to minimize the impact, such as deferring rates for one more year. Load loss and delays in economic development projects have made it nearly impossible for the company to earn the authorized ROE (return on equity).

When will AMI meters be installed in my area?

If approved by the Kentucky Public Service Commission, Kentucky Power’s installation of new metering technology will be rolled out over four years.

  • 2021: approximately 39,000 meters will be installed in larger towns throughout Ashland, Pikeville and Hazard districts
  • 2022: approximately 35,000 meters throughout the remaining areas of Ashland District
  • 2023: approximately 60,000 meters throughout the remaining areas of Pikeville District
  • 2024: approximately 38,400 meters throughout the remaining areas of Hazard District

How is federal tax reform part of the regulatory filings?

In late 2017, the federal government rolled out comprehensive tax reform reducing Kentucky Power’s current and deferred tax liabilities. AEP/Kentucky Power’s tax rate dropped from 35 to 21 percent.

Specific guidelines for flow through of those reductions to customers were determined through negotiations in a specific tax case approved by the Kentucky Public Service Commission. As such, the Kentucky PSC ordered funds returned to customers through a monthly credit. Currently, residential customers receive a credit each month on bills, spread out over 18 years. The credit is for excess Accumulated Deferred Federal Income Tax and is currently planned to continue through the end of 2035.

Kentucky Power – in an effort to protect customers from the ongoing effects of COVID 19 -- is proposing that any rate increase for the first year (2021) from the base case filing be offset by using a portion of the deferred federal tax balance. Customers would see no change in their base rates until 2022.

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

Environmental Compliance Plan Update

Kentucky Power complies with the Federal Clean Air Act, as well as federal, state, and local requirements that apply to coal combustion wastes and by-products from all coal-fired generation facilities. Kentucky Power meets these environmental rules through its Environment Compliance Plan. This plan is reviewed and approved by the Kentucky Public Service Commission (PSC). Kentucky Power can only recover costs of projects included in the approved plan. Once approved by the PSC, these costs are included in the base rates and the environmental surcharge. The environmental surcharge recovers the costs to comply with applicable environmental requirements that are not in base rates. The rate is calculated monthly and is reflected as a line item on all customer bills.

There is a new environmental project that must be added to Unit 2 of the coal-fired Rockport Plant in Indiana to comply with the Federal Clean Air Act. Because Kentucky Power receives 393 Megawatts of electricity from the Rockport Plant to serve eastern Kentucky customers, it must pay some of the costs to meet environmental regulations. The new project is a selective catalytic reduction (SCR) system. Once installed, this equipment will reduce nitrogen oxides released into the air.

Residential customers using an average amount of kilowatt-hours a month will see a total monthly estimated bill increase of 2.2 percent or about $3. Bills for non-residential customer bills are also estimated to increase about 2 percent. The dollar amount will vary by customer class. The new project went (SCR system on Rockport Unit 2) into service early June 2020. The PSC approved this project and its expected costs on May 18, 2020. Kentucky Power will include costs on the new project in the Environmental Surcharge on customer bills beginning in August 2020.

Purchase Power Agreement Rider

Kentucky Power participates in a regional wholesale electric system called the PJM Interconnection. PJM is the regional grid operator for more than 61 million people in 13 states and the District of Columbia, including Kentucky. Much of Kentucky Power’s grid costs are included in base rates. However, Kentucky Power collects up to 80 percent of transmission costs billed to the Company through the PJM system (above or below what is in base rates) through the Purchase Power Agreement (PPA) rider. The PPA rider adjusts annually to incorporate growing costs of regional grid operations. The amount recovered from customers is set each January by the Federal Energy Regulatory Commission, commonly called FERC. The PPA rate that becomes effective on October 1, 2020, will include additional transmission costs and be approximately $4.00 per month for the average residential customer, up from an approximate credit of $1.53 through September 2020.

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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