Journal-Times (Grayson, KY)

October 24, 2012

Olive Hill AG response raises red flags

By Joe Lewis - Staff Writer
Journal-Times

Oct. 24, 2012 — Through an open records request, the Journal-Times has obtained a copy of the Olive Hill city administration’s response to the Kentucky Attorney General regarding the city’s history of sporadic electric rate increases.

The 219-page document contains several notable pieces of information such as the city’s current electric rate ordinance, copies of invoices from American Electric Power (AEP) from January 2010 to present, and a spreadsheet documenting rate adjustments during the same time period.

That spreadsheet outlines a Power Cost Adjustment (PCA) mechanism that the city claims it has used to make needed increases to the cost of electric services over the past several years.

The city’s rate ordinance, however, makes no mention of a PCA procedure. The only reference to increasing electric costs in the document refers to the “schedule of electric prices” which in economic terms refers to the flat rate and the cost-per-unit for a service, not an adjustment formula.

This means that changes to the cost of electricity under this ordinance would be construed as rate increases, which also means that the city would be required to hold a public hearing regarding said increase.

In its response letter, the city stipulates that it has no notices of any public hearings regarding electric rate increases.

A more concerning find in the spreadsheet is the city’s assertion that it did not change its residential rates during the month of May 2010, when the city was devastated by the first of two massive floods.

Bills obtained by the Journal-Times, however, indicate a massive spike in electric rates to residential customers during that month, jumping from $8 to $12.80 per 100-kilowatt hours – more than a 50 percent increase.

Kentucky AG Jack Conway filed a lawsuit against Marathon Oil in May 2011 for similar price-gouging tactics when the oil company drastically raised its gas prices after massive flooding in the state.

County Attorney Patrick Flannery indicated that he has been approached by Glenn and Jennifer Meade regarding potential legal action against the city and for advice concerning their legal rights in response to the allegedly improper rate increases.

Flannery has filed open records requests with the city for pertinent information and is currently reviewing the case.

The AG’s office also sought information from Olive Hill regarding the specific individuals responsible for setting the electric rates.

The city’s response indicated that the task is a joint effort between City Clerk Cheri James, Assistant City Clerk Angela Owens, and Head Utility Clerk Derrick Jones, who collaborate each month to determine the rate cost adjustment.

No details were provided on a PCA formula or any other specific procedure these individuals use to determine rate increases.

The AG also sought assurances that utility funds were being used specifically for utility purposes and that those funds were not being used to subsidize the city’s general fund.

Pay rate information provided to the Journal-Times, however, indicate that salaries for both the city clerk and the assistant city clerk are derived from the city’s utility operations, though both are city employees and not utility employees.

Further, a ledger for the utility checking accounts shows expenditures marked for miscellaneous items such as “Sam’s Club” as well as numerous checks made out to “City of Olive Hill” from utility proceeds.

The AG’s Office of Rate Intervention is currently reviewing all documents included in the city’s response letter. No timetable has been set for a final opinion.

Joe Lewis can be reached at jlewis@journal-times.com or by telephone at 286-4201.